The best
laid plans
How planning prevents economic growth
Alan W. Evans and Oliver Marc Hartwich
Policy Exchange is an independent think tank whose mission is to develop and promote new policy ideas which will
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demics and other experts and commission major studies involving thorough empirical research of alternative policy out
comes. We believe that the policy experience of other countries offers important lessons for government in the UK. We
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Trustees
Charles Moore (Chairman of the Board), Theodore Agnew, Richard Briance, Camilla Cavendish, Iain Dale, Richard
Ehrman, Robin Edwards, George Robinson, Tim Steel, Alice Thomson, Rachel Whetstone.
About the authors
Alan W. Evans is Professor of Economics
and Director of the Centre for Spatial and
Real Estate Economics at the University of
Reading Business School. He is the author
of The Economics of Residential Location
(1973), Urban Economics (1985) and No
Room! No Room! (1988). He was co-editor
of Public Economics and the Quality of Life
(1977) and The Inner City: Employment
and Industry (1980), and has published
extensively in urban and land economics.
His most recent books are Economics, Real
Estate and the Supply of Land and
Economics and Land Use Planning, both
published by Blackwells in 2004. He has
also carried out consultancy for the House
Builders Federation, Ove Arup, Pro Svi
(Milan), Hong Kong Centre for Economic
Research and others.
Dr Oliver Marc Hartwich is a Research
Director at Policy Exchange with responsibility for economic competitiveness. He
was born in 1975 and studied Business
Administration and Economics at Bochum
University (Germany). After graduating
with a Master’s Degree, he completed a
PhD in Law at the universities of Bochum
and Sydney (Australia) while working as a
Researcher at the Institute of Commercial
Law of Bonn University (Germany).
Having published his award-winning thesis with Herbert Utz Verlag (Munich) in
March 2004, he moved to London to support Lord Matthew Oakeshott of Seagrove
Bay during the process of the Pensions Bill.
Alan W. Evans and Oliver Marc Hartwich have co-authored three previous publications for
Policy Exchange: Unaffordable Housing: Fables and Myths (2005), Bigger Better Faster More:
Why some countries plan better than others (2005), and Better Homes, Greener Cities (2006).
© Policy Exchange 2007
Published by
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2
Contents
Acknowledgements
Foreword by Simon Wolfson
Executive Summary
1
2
3
4
5
6
Introduction
Control and constraint
Economic growth, delay and the level of detail
The effect of planning on interest rates
The Barker Review of Land Use Planning
Conclusions and recommendations
4
5
7
9
12
30
40
42
47
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• 3
Acknowledgements
Philip Booth
Richard Ehrman
Matt Hancock
James O’Shaughnessy
Hugh Pavletich
Mark Pennington
Craig Salter
James Swaffield
4
Foreword
Political debate around planning is dominated by the myth that land in the UK is a
scarce resource. The result is a system that
strictly rations a commodity in bountiful
supply. In an earlier report Alan W. Evans
and Oliver Marc Hartwich brilliantly
exposed both this myth and the forces that
keep it alive, not least the contribution that
urban densification has made to perpetuate
the misconception of an overcrowded
island.
The effect of this artificial rationing on
our economy cannot be overestimated. If
wealth creation is about making things of
value, and for most people their homes are
their most valuable possession, then a system that rigorously prevents the construction of better homes must inhibit wealth
creation.
So far, the impact of land rationing is
too indirect on people’s everyday lives to
create the required political pressure to
force change. The connection between
soaring house prices and restricted supply
is little understood. Government has even
attempted to engineer affordable housing
through further restrictions to development – with the ironic but inevitable effect
of increasing house prices! Even less understood is the effect that our restricted housing market has on interest rates. Limited
supply of housing means that economic
growth in the UK tends to create disproportionate increase in house prices. In
turn, this inflationary pressure contributes
towards a need for higher interest rates.
The argument in favour of quicker, simpler and less restrictive planning will be
hard to win. Those sympathetic to house
building are caricatured as wanting to
“concrete over” the whole country. In fact
using less than one percent of rural land
would be sufficient to increase land available for housing by more than ten percent!
This equates to less land than is currently
designated as agricultural set-aside. The
battle can only be won through the slow
process of breaking down prejudice using
persistent and rational argument. To this
end the Evans and Hartwich series on
planning has made significant headway by
providing a clearly researched and well
argued case in favour of a different
approach to planning.
There is even a danger that we get so used to the
“
delays and inconsistencies of our planners that we
cease to see it as a problem
”
This report takes the argument one step
further by demonstrating how the UK’s
restrictive planning regime undermines the
competitiveness of our economy by
increasing costs, reducing choice and
inhibiting flexibility. To many of us
involved in commerce, frustration with the
planning system is an accepted fact of life.
There is even a danger that we get so used
to the delays and inconsistencies of our
planners that we cease to see it as a problem. My own place of work has been
forced to build a multi-storey car park (at
huge expense), while un-farmed scrubland,
complete with electricity pylon and motorway view, is “conserved” right next door!
Even when the answer is favourable, the
time taken to make planning decisions in
itself slows down our economy. A shop
opened six months late as a result of a planning enquiry is six months lost profit. In
the time it took Hong Kong to build a new
airport the UK could not decide whether
to build an extra runway at Heathrow! The
time value of planning delays is never
quantified but must undermine our ability
to compete in a global market.
The more I think about it the more I
believe that the debate about planning is
really a debate between optimists and peswww.policyexchange.org.uk
• 5
The best laid plans
simists. The optimists believe individuals
and businesses can develop the country
responsibly with relatively light regulation.
We believe that there need not be a conflict
between environment and prosperity, if we
manage the process of development properly. In fact, given space, we can develop
greener towns and cities that are safer,
cleaner, more comfortable, and designed to
6
be more environmentally friendly. The
pessimists mistrust development. Of
course we must value and preserve our heritage but if our love of the past is stronger
than our hope for the future then we will
condemn our nation to slow decline.
SIMON WOLFSON
Chief Executive, NEXT plc
Executive Summary
In
three
previous
publications
(Unaffordable Housing: Fables and Myths,
Bigger Better Faster More: Why some countries plan better than others, and Better
Homes, Greener Cities) we have shown that
most of the problems with the housing
market – low supply, high prices, overcrowding – can be attributed to the planning system. A policy constraining land
supply had led to the population being
housed in homes that are on average smaller, older and more expensive than houses
in other developed nations. In this report,
we turn our attention to the effects of the
planning system on the UK economy.
While the basic justification for planning is the coordination of development,
we found that, first implicitly and later
explicitly, the main objective of planning
has been to limit the spatial extent of cities.
This artificial reduction of land supply has
had – and continues to have – severe consequences for society, the environment and
the economy:
z Planning and high land prices have
become one of the main obstacles to
social mobility in the UK. Rising land
prices in the UK have benefited some but
harmed most. They have favoured land
and property owners while others have
had to pay the price through higher rents
and higher retail prices. They have
favoured wealth over wealth creation,
property over enterprise, old over young.
z The UK has lost out on numerous economic opportunities because of high
land prices. Manufacturing has declined
much more rapidly than in other developed nations as land-intensive industries
have been rendered uncompetitive. Jobs
that could have been created here have
gone elsewhere, while the North especially suffers from a lack of economic
development.
z The planning system reduces consumer
choice and leads to higher prices. It has
also been responsible for a high degree
of market concentration in the retail
sector where new entrants can be
blocked through the planning system.
Consumers have to pay the price for
this through a lack of choice in “clone
town Britain” and much higher retail
prices than in other European countries.
z T h e q u a l i t y o f l i f e h a s su f f e r e d i n
British cities as they could not grow
outwards due to containment policies,
but have had to accommodate more
and more people in existing spaces.
This has led to the ‘greying’ of cities as
well as overcrowding in housing, services and transport.
z Restrictive planning has led to higher
interest rates, punishing those with
mortgages. Rapidly rising land and
house prices had to be controlled
through higher interest rates, and again
the price of this policy was paid by
those struggling to pay their mortgage
rates, while those with money to invest
benefited.
It is high time for a reform of the planning system
“
if we do not want to harm the social and economic
aspirations of large parts of the population
”
These severe economic, social and environmental distortions are the result of a planning system that favours the rich at the
expense of the poor. It is high time for a
reform of the planning system if we do not
want to harm the social and economic
aspirations of large parts of the population,
especially the young generation. Such a
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• 7
The best laid plans
reform of the planning system has to deal
with many issues at once:
z Development must be incentivised at
the local level. We suggest the introduction of a Social Cost Tariff (SCT) to
compensate local communities for the
social cost of development. This SCT
would be worth a maximum of
£500,000 per hectare, but variable
downwards. The SCT would replace all
existing charges associated with development, such as Section 106 agreements, and would go entirely to local
councils.
z The national green belt policy should
be abolished and replaced by local
communities making their own decisions about their environment.
z Projects of national importance should
be decided by an Act of Parliament. We
recognise that there are limits to local
decision-making, and this applies particularly to projects of national significance.
8
Using Parliament’s power would speed
up the development of vital infrastructure, such as new airports, power stations
and high speed rail routes.
z The reintroduction of simplified planning zones to reduce delay and speed
up the planning system, a system that
had been experimented with in the
1980s. In such a zoning system planning proposals would only have to be
given in outline, thereby reducing the
level of detail that planning authorities
are currently dealing with.
z Finally, we argue for a general reduc tion of complexity in the planning sys tem. Over the past decades, the planning system has been used and abused
to deal with numerous issues from
environmental sustainability to regional policy. We believe that it is time that
the system is stripped from this ballast
so that it can deal with what it was
actually meant to achieve: the coordination of development.
1
Introduction
In the last two years Policy Exchange has
put out three publications which looked at
the impact of planning on the housing
market. The first, Unaffordable Housing:
Fables and Myths, showed that the UK
planning system, and its policy of constraint, had resulted in new housing in the
UK being expensive, small and poky. In
other developed countries with comparable income levels, new housing was cheaper, larger, and more spacious.
The second, Bigger Better Faster More,
looked at the way in which things were
done in four other countries: Germany,
Switzerland, Australia and Ireland. The
third, Better Homes, Greener Cities, looked
again at the UK system and proposed
changes to the way it operated. These
changes were necessary, it was argued, to
allow more and better homes to be built,
homes of a kind that people would want,
homes they would prefer, as opposed to
those that politicians and planners thought
would be good for them.
Housing is only one kind of land use
although, in terms of area, by far the
most important urban land use. But
urban land is also used for commercial
activities – factories, warehouses, shops,
offices, hotels, restaurants, banks, and so
on. It is also used for various public sector uses – schools, central and local government, universities, churches, uses
which are to a greater or lesser part not
governed by the rules of the market.
These ‘non-domestic’ uses account for
about seven percent of the urbanised area
of England, more than 90 per cent is
used for housing, roads, paths, etc.1 In
this report we will look at the use of land
for commercial activities.
Increasing development and growth, on the other
“
hand, would be profoundly progressive because it would
disproportionately improve the lives of the worstoff in
society – the poor and the young
”
Discussion of the impact of planning on
commercial activities in the UK tends to
concentrate on the system and the way it is
operated. Permission has to be obtained for
any building, or for most changes in the
use of existing buildings. The system is
seen as overly concerned with matters of
detail, to the extent that the discussion of
detail of the operation of the planning system, as well as of matters of principle,
results in delay. Our main thesis, on the
other hand, will be a continuation of the
theme of the three previous publications:
we will concentrate on the malign effects
of the policy of constraint, which has come
to be the main thrust of the UK system of
land use planning. This policy sees development as a problem to be prevented, if at
all possible, rather than encouraged as an
engine of growth and wealth creation. We
believe this to be a regressive policy, one
which protects the interests of the propertied and well-off. Increasing development
and growth, on the other hand, would be
profoundly progressive because it would
disproportionately improve the lives of the
worst-off in society – the poor and the
young.
1. Kate Barker, Review of Land
Use Planning - Interim Report,
2006
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• 9
The best laid plans
After this brief introduction, we go on,
in the next chapter, to look at the way in
which the policy of constraint came into
being, at first unacknowledged, then as an
accepted but implicit policy, more recently,
since 1997, an explicit and formally
acknowledged policy of containing the
area of urban land. We also outline its economic effects. We show that the result has
been a general increase in the price of land
for all uses. We go on to demonstrate that
as the economy grows and land prices rise
this results in a bias against ‘land extensive’
uses such as manufacturing industry, and
that this bias is magnified by the current
government’s policy of encouraging residential development on land in other uses,
so-called ‘brown field sites’.
The system, by giving priority to land use decisions
“
over economic ones, protected the growth of local
monopolies by restricting competition
”
In the second half of this chapter we
look at the arguments which have been put
forward to justify the policy of constraint
and high land costs, and set out the less
obvious costs of the policy. We produce a
substantial amount of evidence to demonstrate that London is probably the most
expensive city in the world, and that, perhaps more surprisingly, the other major
UK cities are also amongst the most expensive, certainly in terms of the cost of office
space and the cost of industrial floor space.
In the third chapter we turn to the
implications of the current land use planning system for the economic growth of
the UK economy. A major problem is its
complexity. The system is complex and
legalistic and results in delay. This delay
means that investment takes place later
than it should (if it has not been abandoned), with a consequent loss of efficiency. Associated with the delays built into the
10
system is the level of detail which the
British planning system tries to control, a
factor which, of itself, builds in delays. We
then look at the relationship between land
use planning, economic growth and competitiveness. This was first investigated by
the McKinsey Global Institute, which
found that the planning system was one of
the main features of the UK economy
which inhibited economic growth. It does
this in three ways. First, the system, by giving priority to land use decisions over economic ones, protected the growth of local
monopolies by restricting competition.
Secondly, the level of regulation was excessive and hindered development. Thirdly,
the policy of constraint discouraged the
growth of clusters of firms in the same or
similar industries which might derive synergies from spatial proximity. To function
effectively, urban areas must be allowed to
be dynamic, with the capacity to meet ever
changing needs.
In the fourth, and briefest, chapter we
set out the macroeconomic impacts of the
policy of constraint as, by making the
housing market more price volatile, it leads
to interest rates being more volatile, and
higher, in the UK than in other competitive economies. In the fifth chapter we
review Kate Barker’s recent report on the
land-use planning system, where we are
generally supportive of its analysis but criticise its recommendations as being too
timid.
Finally, in chapter six, we summarise our
conclusions and set out our recommendations. In the main, perhaps unsurprisingly,
these are similar to our recommendations
when we considered the impact of planning on the housing market in Better
Homes, Greener Cities. In the first place the
policy of constraint has to be put on an
economically rational basis; it must not be
subservient to the views of vocal pressure
groups, whether local or national, since
these are usually the views of the ‘haves’
trying to protect their interests from the
Introduction
‘have-nots’. We argue that a Social Cost
Tariff (SCT) should be paid when green
field sites are used, but this SCT should be
based on the actual social cost of the use of
this land, rather than on the exaggerated
social costs implicit in the current price of
urban land.
We go on to argue that the British system of local government finance should be
restructured so that some incentive is given
to local government to allow development,
rather than, as now, if anything, a disincentive.
We also add three further proposals. The
first is that, generally, the level of detail
which the system should have to deal with
should be reduced. If the level of detail
with which the system has to concern itself
could be reduced then it could operate
more transparently and more quickly.
We make a further recommendation
that proposals which are of national or
regional importance should be dealt with
at the proper, i.e. national or regional,
level. They should not be bogged down in
lengthy planning inquiries. There should
certainly be some facility for resolving
questions of local importance, but if the
previous proposal was accepted, then these
questions of detail would be fewer.
There has been a tendency over the years
to complicate the system, to try to get it to
deal with wider and wider problems, and
to include within it both consultation at
the local level and policy as laid down by
central government. Public choice theorists
will recognise the tendency. It is a way of
trying to keep everybody happy. But the
result is an overcomplicated system which
few really understand and which is sup-
posed to deal with problems which it was
not designed to deal with, like global
warming or regional economic development. We therefore conclude by arguing
that the system has to be made simpler;
that it should be a system designed to provide a frame for development rather than,
as it has become, a system apparently
intended to control every aspect of development and to fit it into a centrally
planned mould.
In 2005 the economist Kate Barker was
asked by the Chancellor and the Deputy
Prime Minister to review the working of
the planning system. Her interim report
appeared in July 2006 and her final report
in December 2006. We are indebted to her
for these reports, which present evidence
which tends to confirm our analysis of the
economic impact of planning, both on the
supply of housing and on commerce and
industry. We critically discuss her recommendations in chapter five, but one piece
of evidence cited in her final report we
would wish to quote here. In our earlier
reports we suggested that the British have
an exaggerated view of the degree of urbanisation of their country. A survey was carried out on behalf of the Barker Review
which completely confirms this suggestion. This survey showed that the majority
of the population of England believe over
half the country to be urbanised, where the
true figure is around ten per cent. In reading the report which follows it is worth
bearing in mind that political support for
the policy of constraint by the population
is based on a comprehensive misunderstanding of the situation and a lack of
knowledge of the true facts.
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• 11
2
Control and constraint
The causes and consequences
of increasing land prices
Summary
In this chapter, we look at the way in
which the policy of constraint came into
being, at first unacknowledged, later as an
implicit policy. Most recently, in the years
since 1997, it has become an explicit policy of containing the spatial extent of the
urban area. We show that the result has
been a general increase in the price of land
for all uses, whether residential, commercial and industrial. We show that as the
economy has grown and land prices have
risen this has resulted in a bias against ‘land
extensive’ uses such as manufacturing
industry, and that this bias is magnified by
the current government’s policy of encouraging residential development on land in
other uses, so-called ‘brown field sites’.
In the second half of this chapter we
criticise the arguments which have been
put forward to justify the policy of constraint and high land costs, such as that it
is a kind of regional policy or that it is
intended to promote sustainability. In the
course of the chapter we produce a substantial amount of evidence to demonstrate that London is probably the most
expensive city in the world, and that, perhaps more surprisingly, the other major
UK cities are also amongst the most expensive, certainly in terms of the cost of office
space and the cost of industrial floor space.
2. See, for example, Colin
Buchanan, Mixed Blessing ,1958
3. Alan Taylor, English History
1914-1945, 1965
12
The origins of the planning system
The UK land use planning system came
into force with the Town and Country
Planning Act 1947. The object of the system was to bring order. Development
before the war had been largely uncontrolled, and even though, in southern
England at least, new factories had been
built and a growing population accommodated in better housing, this ‘unplanned’
development was seen as a symptom of disorder.2 Within towns bomb damage was
extensive, particularly so in the big cities
where the older industrial areas, notably
the East End of London, had been the
main targets.
Under the new system development
would be ordered and controlled, in short,
planned. This was in accord with the dominant political philosophy of the time. The
post-war Labour government had gained a
landslide victory and was committed to the
nationalisation of the means of production, distribution and exchange. The UK
had anyway been centrally planned for five
years, possible more centrally controlled
than Italy and Germany.3 It was anticipated that the bomb damaged areas in the
cities could be cleared and rebuilt at lower
densities. New towns would be built to
accommodate firms and their workers who
would move out of the big cities into
decent, uncrowded, accommodation. The
outer boundaries of the built up areas of
the major cities would be defined by the
inner edges of green belts. Within these
built up areas, together with the new
Control and constraint
towns, it was estimated that there would be
enough land for the projected industrial,
commercial and residential uses. It was
expected that regional policies would effectively deter too much development occurring in the South, diverting manufacturing
industry to the areas where unemployment
had been so high in the 1930s. With the
new towns and some expansion of existing
urban areas, it was anticipated, and therefore planned, that there would be no need
for any other development in rural areas.4
Farmers could therefore be left free of regulation to grow food, an essential priority
at the time; they were freed of planning
controls in a way that no other industry
was. They were indeed to be the custodians
of the countryside.
It is reported that Harold Macmillan
was once asked what, as Prime Minister,
did he have most to worry about. ‘Events,
dear boy, events’, he is said to have replied;
and so it has been with British planning. In
the course of time conditions changed, but
plans did not. Perhaps the changes might
have been foreseen, and, if foreseen,
planned for, but they were not, and even
when these changes were occurring the
plans changed little and slowly. Incomes
increased, as they had not before the war,
in a long relatively unbroken period of stable prosperity. The population increased,
as it had not done between the wars.
Households became smaller. Car ownership increased.5 Regional policies were relatively ineffective in diverting demand
northwards, and, in any event, manufacturing industry, mining and agriculture
declined in relative economic importance.
Services and office employment increased.6
Maybe the demographic changes might
have been anticipated. But it is doubtful
that the changes in economic structure
could have been planned for. It is in the
nature of economic change that it results
from innovation, and innovation is, by
definition, difficult to predict. Plans cannot be made for the unpredicted.
The result of the demographic changes
was an increase in the demand for
dwellings in terms of the number of
homes. The result of the economic changes
was an increased demand for larger homes
with more space. The various structural
changes accentuated a change which had
begun between the two world wars – an
increase in the economic importance of the
South against the North, reversing a shift
in their relative importance which had
begun with the industrial revolution and
dominated the 19th century.
An implicit policy of constraint came into being, con
“
straint which was more evident where demand was high,
in the South, than where it was low, in the North
”
Since these changes were not anticipated, and therefore not planned for, the
increase in the demand for land was not
met by a similar increase in the amount of
land allocated in plans. So, unacknowledged by any government, Labour or
Conservative, an implicit policy of constraint came into being, constraint which
was more evident where demand was high,
in the South, than where it was low, in the
North.
The first acknowledgement of this
phenomenon in academic work was in
the extensive study The Containment of
Urban England by Peter Hall and a team
of geographers, published in 1973.7 But
the policy of containment had economic
consequences, as well as a geographical
impact. The increase in demand and the
limitation of supply resulted in land
prices steadily increasing at a rate faster
than the general rate of price inflation.8
So by the 1970s, in most parts of the
country, the price of land with planning
permission for development was greater,
often substantially greater, than the price
4. Barry Cullingworth, 'British
land use planning', Urban
Studies, 1997
5. Ibid
6. Peter Hall, Urban and
Regional Planning, 1980
7. Peter Hall, H. Gracey, R.
Drewett, & R. Thomas, The
Containment of Urban England,
1973
8. Kate Barker, Review of
Housing Supply: Interim Report Analysis, Chapter 1, 2003
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• 13
The best laid plans
9. Gerald Eve, with Department
of Land Economy, Cambridge,
The Relationship between House
Prices and Land Supply, 1992
10. DETR, Planning Policy
Guidance Note 3: Housing, 2000
11. Kate Barker, Review of Land
Use Planning: Interim Report Analysis, Chapter 1, p.151, 2003
(data from the Property Market
Report 2006 of the Valuation
Office Agency)
of the same land without planning permission.
Prices continued to rise in the 1980s as
the accidental and implicit policy of containment was continued. But, when concern began to be expressed, any connection
between a restriction on the supply of land
and its price was denied. Only in 1992 did
the then Department of the Environment
commission a report on the possible connection, and in consequence was forced to
accept the conclusion, that restrictions on
the supply of land could and did result in
higher land prices.9
This belated commitment by government to an understanding of economic
theory was, however, only a symbolic victory. Symbolic alone because the policy of
constraint had been reinforced in the
Planning and Compensation Act of 1991
by a requirement that development should
not be permitted which was not in accord
with central government approved plans.
In the late 1990s, the policy of constraint ceased to be implicit, and became,
very definitely, explicit. The new Labour
government made it a matter of policy
that a high proportion of any new housing should be built on land which had
been previously developed, so called
‘brown field sites’, with a target of at least
60 per cent.10 Nevertheless the fact that
this policy depended on, and resulted in,
both high house prices and higher land
prices for all uses has never been acknowledged. Indeed, we are told that the view at
the former Office of the Deputy Prime
Minister (ODPM) was that somehow
these brown field sites were equivalent to
green field sites. So although the implication that these policies would result in
higher land and house prices as well as
commercial rents might be obvious to
those interested in housing and with some
acquaintance with the laws of supply and
demand, it went unrecognised in the
UK’s central government until the advent
of the 21st century. Some connection
between housing land supply and house
prices was only accepted in central government with Kate Barker’s two reports
on the supply of housing in 2003 and
2004. The impetus for these reports,
however, came from the Treasury rather
than the ODPM. Albeit reluctantly and
with little sense of error, one has to say,
since little has in fact changed in the past
few years.
Table 1: Land value for different uses in the regions11
Region
Mixed agricultural
Land for residential
Industrial and
Business Class
land, £/ha
use, £/ha
warehousing, £/ha
B1, £/ha
North East
6,701
2,210,000
167,000
235,000
North West
9,633
2,740,000
425,000
583,000
Yorkshire/Humberside
9,159
2,330,000
522,000
557,000
East Midlands
7,595
2,060,000
438,000
500,000
West Midlands
11,945
2,200,000
525,000
639,000
Eastern
7,739
3,615,000
1,038,000
1,269,000
South East
11,787
3,240,000
1,393,000
1,672,000
South West
10,416
2,340,000
662,000
760,000
9,774
2,270,000
223,000
266,000
Wales
England & Wales excl. London
London
14
10,023
2,600,000
660,000
779,000
n/a
7,625,000
1,767,000
2,138,000
Control and constraint
The price of land
If the price of land for housing is high does
this impact on other commercial uses,
activities that are our concern in this publication? The answer is that it may but
that this depends on the operation of the
policy of constraint, and the extent to
which different degrees of constraint are
applied to different land uses. Table 1
shows the price of land in different uses
and different regions. It can be seen that
there are large differences between regions
and larger differences between uses, with
land for housing being everywhere the
most expensive.
This has not always been true. Up to
the 1980s there was a view, often not
expressed explicitly, that industry was
productive but that other commercial
uses such as offices and retailing were not.
Although it is difficult to comprehend
today this attitude can be traced back to
Marx, maybe even further. Nevertheless,
one can understand this way of thinking
at that time, after the war, when manufacturing industry, and its exports, were seen
as of crucial importance to the economic
survival of the nation, whereas offices and
shops simply provided services to local
inhabitants. This attitude meant that the
degree of constraint on the availability of
land for manufacturing industry was low,
but that the constraint on the availability
of land for retailing and offices was high.
Unfortunately, detailed data is scarce and
often dated, but a study carried out in
Reading in 1984 suggested that the price
of agricultural land was about £2,500 per
hectare but that the price of land for
housing land at the edge of the urban area
was about £500,000 per hectare. The
value of land for industry was about £1
million per hectare, and the value of land
for other commercial uses still higher, at
least £1.25 million for offices and over £6
million for retail. At the same time the
authors carried out a comparative study
of Darlington, in North East England,
where they found the value of land for
industry to be about £50,000 per hectare,
somewhat less than the figure for residential use, while the price of land for retail
use was over £2.5 million per hectare.
(There were no instances of land sold for
offices.)12
While the price of industrial land in
Darlington in North England was lower
than the price of land for residential use;
the price of industrial land was much
greater in South East England where,
indeed, it was higher than the price of
land for housing. The lower price in the
northern region is evidence both of lower
demand, and of the fact that, because of
that lower demand and hence higher
unemployment, there was in effect little
constraint on the development of land for
industry.13 Firms could quickly move into
new factories so that, it was hoped,
employment in the area could be
increased and unemployment reduced.
The price of industrial land could therefore be taken as the cost of ‘raw’ agricultural land plus the cost of putting in
infrastructure, roads, and other community services. Certainly other evidence
suggests that the cost of providing soft
and hard infrastructure may account for
as much as 90 per cent of an industrial
plot when land is supplied at agricultural
use price.14 But since the price of industrial land in Darlington represents a kind of
base price, the data also tell us that the
prices of land in other uses, prices which
were higher both in the North and in the
South, were higher because of the operation of the policies of constraint, which
reduces the supply of land, and higher
again in the South where demand is higher.
The late 1980s and early 1990s represented a period of turbulence in the property market. Most noticeably there was a
boom followed by a bust. This can be seen
in Figure 1 which shows residential and
industrial land values in the West
Midlands.
12. Paul Cheshire, Stephen
Sheppard, and Alan Hooper, The
Economic Consequences of the
British Planning System,
Department of Economics,
University of Reading, 1985
13. Ibid
14. Alan W. Evans, Economics,
Real Estate and the Supply of
Land, p.215, 2004
www.policyexchange.org.uk
• 15
The best laid plans
Figure 1: Residential and Industrial Land Values in West
Midlands 1983-2005 (£m per hectare, nominal values)15
£m per hectare
2.5
Residential land
2.0
1.5
1.0
Industrial land
0.5
15. Valuation Office Agency,
Property Market Report, 2006
16. Town and Country Planning
(Use Classes) Order 1987
(England and Wales)
17. Valuation Office, Property
Market Reports, Spring and
Autumn, passim
16
2005
2001
2003
1999
1997
1995
1991
1993
1989
1987
1985
1983
0.0
The boom was not only a price boom
but also, to some extent, a building boom.
At the time, a number of changes in the
relative degrees of constraint took place.
First, in the process of the changeover from
Domestic Rates to the Community Charge
and then to the Council Tax the taxation of
residential properties was substantially
reduced, largely to make the two changes
politically acceptable. The level of taxation
of commercial properties was not reduced,
however, though its level became centrally
rather than locally controlled. One would
have expected residential land values to
have risen relative to commercial land values and that is what appears to have happened.
Secondly, in the late 1980s it was recognised that new ‘high tech’ firms were coming into existence. It was unclear whether a
software firm, for example, was office or
manufacturing or, indeed, research. To
allow for this a new use class, B1, was created which covered Business, that is both
office and light industry.16 (Use Classes B27 covered General Industry and Special
Industrial Groups.) This had the effect that
the price of land for office space tended to
converge with the price of land for industrial use.
Besides, the position with respect to
retailing also changed. On the supply side
permission was given for a large number of
new out of town supermarkets, so the supply of retail space increased. The position
changed with the issue of new Planning
Policy Guidance in the early 1990s, and
this flow of new development ceased
around 1996.17 On the demand side the
law changed. Whereas the hours at which
British supermarkets could open had been
limited, now they were almost unrestricted. So customers were not forced to shop
during ‘normal’ working hours. Shops and
supermarkets could remain open late, and
some began to stay open for twenty-four
hours. Almost the only remaining restriction was that larger stores could only open
for six hours on Sunday. The change in the
law meant the demand was spread over a
longer time, and this demand could therefore be met with less space. The combined
effect of the increase in supply and the
changes on the demand side was that the
price of retail space did not rise as fast and
tended to be closer to the price of industrial land. Of course the price of land for any
business use remains, as Table 1 shows,
many times higher than the price of raw
agricultural land.
The current position is, as shown in the
Table 1, that the price of land for commercial uses, industrial and B1 at least, differs
between regions but relatively little within
the regions. The price of land for housing
is now far higher, in all regions, than the
price of land for industry or commerce.
Nevertheless, with the possible exception
of North East England, the price of land
for commercial and industrial uses is still
itself far higher than the price of agricultural land, even if one assumes that the cost
of infrastructure provision is included in
the cost of land. In the South of England it
is far, far higher. What are the consequences of this? Is the policy of constraining the availability of land for commerce
and industry good or bad for the nation?
A brief excursion into economic theory
For over two hundred years economists
have tried to explain the reasons for international and interregional trade. The
Control and constraint
received theory, due to the economist (and
stockbroker) David Ricardo, was that
nations, and regions within nations, had
‘comparative advantages’ in the production
of some goods and services, but not in others.18 But in what did these comparative
advantages lie? One of the basic theories of
international trade argues that the advantages arise from the differing distribution
of the factors of production – land, labour
and capital. A country which had a small
population relative to its land area, i.e. a
relative surplus of land, would export
goods which required a lot of land for their
production, and import goods and services
which were mainly a product of labour.
Conversely an area with a higher ratio of
labour to land would export goods which
required relatively labour intensive production, and import goods where production
required relatively more land.19
This pattern of trade would occur
because the price of land would be relatively high where it was in short supply, while
the price of labour would be relatively high
where it was the factor in short supply.
Because of trade, however, as the pattern of
production adapted to the pattern of trade,
the factor prices would tend, in the very
long run, to equalise. This is because activities which used a lot of land would be driven out of business where land was expensive
and in short supply. These activities would
transfer abroad to where land was cheaper.
On the other hand, activities which used a
lot of labour would transfer out of areas
where labour was in short supply and
expensive, and move to where labour was
cheaper. In economics this is called ‘factor
price equalisation’. The non-economist
should note that in practice there will only
be a tendency towards equalisation, not
actual equalisation. Economists tend to
overuse the term ‘in the long run’, a tendency famously debunked by one of the
most distinguished members of the profession, John Maynard Keynes, who pointed
out that ‘In the long run we are all dead’. In
the world of economic policy rather than
economic theory it is the short and medium run we are really concerned with.
Besides, economics, properly understood, is
dealing with processes, not hypothetical
end-states.
A policy of distortion
The implications for the operation of the
UK planning system will certainly have
been realised by the reader but, for the sake
of clarity, we will spell them out. The UK
policy of constraint ensures that urban
land is in short supply, in short supply that
is relative to other countries which do not
have similar constraints on urban development, whether man made or natural.
Germany, for example, has a comparable
population density, but uses a higher percentage of land for development than the
UK.20 As we have shown, the price of land,
in any urban use, is therefore high across
almost the whole country. Where the constraint is tightest and the demand is highest – with land for residential use – the
prices are highest. Of course, since the constraint is man made rather than natural,
the degree of constraint can be varied. It
can differ between areas, and it can be different for different uses in the same area.
We saw that this was particularly evident
in North East England, where the constraint on land for manufacturing has been
low. On the other hand, the evidence
shows that the constraint on land for commercial uses has always been high in the
South – and that is even though the proportion of the land area of England which
is urbanised is only about 10 per cent;
indeed, even including London – some 87
per cent of which is in urban usage21 – less
than a fifth of the South East of England is
urbanised, and the proportion of southern
England which is urbanised is still lower
since the South West and East Anglia are
two of the least urbanised areas of the
country.
18. David Ricardo, Principles of
Economics, 1815
19. The theory is due to the
Scandinavian economists,
Heckscher and Ohlin. See, for
example, Ronald Findlay, Trade
and Specialisation, 1970
20. Alan W. Evans & Oliver Marc
Hartwich, Bigger Better Faster
More - Why some countries plan
better than others, Policy
Exchange, London 2005
21. www.sustainable-development.gov.uk/regional/documents/l
ondon_factsheet.pdf
www.policyexchange.org.uk
• 17
The best laid plans
Clearly, in areas where unemployment
has been high, there has always been political pressure to permit industrial development on the grounds that it would create
jobs. But in areas of more or less continuous full employment in southern England
no such pressure has existed. Furthermore,
unlike countries with a strong element of
local business taxation like Germany or
Switzerland, there are not enough fiscal
incentives for local planners and politicians
to engage in a pro-development policy.
22. www.kingsturge.com/
resources/library/0/research/2006/
01Aug/160820063317_pdf.pdf
Figure 2: Total occupation cost of prime industrial
space22
0
50
100
150
200
250
0
50
100
150
200
250
London, Heathrow
Dublin
New York
Moscow
Birmingham, UK
Tokyo
Bristol
Glasgow
Edinburgh
Manchester
Leeds
Barcelona
Stockholm
Geneva
Zagreb
V ienna
W ashington
Cardiff
Zurich
Hong Kong
Luxembourg
Copenhagen
Phoenix
Belfast
Frankfurt
Munich
Bucharest
San Diego
Canberra
Sydney
Vancouver
Paris
Orange County
Berlin
Athens
Budapest
Prague
Toronto
Madrid
Amsterdam
Rotterdam
Singapore
San Francisco
Milan
Auckland
San Jose
Belgrade
Memphis
Chicago
Las Vegas
Brussels
V ilnius
Adelaide
W arsaw
Lyon
Kuala Lumpur
Marseille/AixenProvence
Antwerp
Houston
Gold Coast
Portland
Denver
Minneapolis
Nicosia
Brisbane
Perth
Melbourne
Charlotte
Wellington
Valencia
Shanghai
Kansas City
Jakarta
Mexico City
18
The result has been, if the price of land is
used as evidence, that in the South there
has been a high level of constraint for all
uses, although the level has varied between
the uses over the years. Only in the last few
years has the constraint on housing land
become significantly greater than the constraint on land for other uses.
The economic consequences of this continuing policy of constraint are implicit in
the economic theory of trade we set out
earlier. Activities which use land extensively will become uneconomic and unable to
compete with similar activities based elsewhere where land is cheaper. If labour is
also cheaper there the economic pressure to
relocate activities is doubled. Most obviously, single storey factories on large sites
are the most likely to be driven out. Office
blocks become the most economic commercial use of the land which is available.
With an explicit policy that as much
housing as possible should be put on
brown field sites the bias against manufacturing is reinforced. After all, if a factory is
closed down, then the site becomes a
brown field site occupied by a derelict factory, perceived in current policy terms as
eminently suitable for redevelopment for
housing. So while a reluctance, in the past,
to allow such redevelopment might discourage owners from closing down a factory, current policies of encouraging the
redevelopment of ‘brown field sites’ for
housing also positively and explicitly
encourage such behaviour. Furthermore,
local authorities are encouraged to use this
land due to government targets for brown
field development.
Thus the planning system and its policy
of constraint distorts the development of
the economy, biasing it against manufacturing and other extensive uses, and in
favour of land intensive uses such as offices
and high density housing. What appears to
be a benign policy based on re-using existing derelict sites becomes a malign policy
encouraging the closure of factories to
Control and constraint
one sixth in the case of Germany.
Moreover. this trend continues. Recent
data indicates that industrial production in
the European Union increased by 9 per
cent between 2000 and 2005. In the same
period, in the UK, it dropped by nearly 5
per cent.25 While the growth in the rest of
Europe might be because of improving
economic conditions, the fall in production in the UK occurs at time of apparent
economic prosperity. But then, as Ivor
Tiefenbrun recently commented in the
Journal of the Royal Society of Arts, “the
sad truth is that nobody in Britain has
built a major manufacturing company
from scratch since the time of the Attlee
government of 1945. . . No other country
has such a pathetic track record of manufacturing business creation. All our major
manufacturers pre-date the Second World
War”.26 Or, as he might have put it, predate the Town and Country Planning Act
of 1947.
While it is of course possible that other
factors such as a potential lack of skills
contributed to this lack of development, it
is reasonable to expect that high land prices
have much to do with this phenomenon.
Take Germany as an example: The average
price of building land there (residential
and industrial) is about £400,000 per
hectare27 – far below English land prices
(see Table 1). For a company that considers building a new large factory, such huge
differences in land prices may be an impor-
make a profit selling the land for housing.
At the same time the production is moved
elsewhere, sometimes directly, by the company itself, more usually by the cessation of
production in the UK being covered by
imports from abroad. All this is based on
the myth of scarce land which, as we have
seen, is simply not true.
This of course can be seen to be happening in the UK, where manufacturing has
declined at an alarming rate and faster than
in many other developed countries.23
Why this would occur is evidenced
Figure 2. This shows the occupation cost
of industrial floor space in a number of
cities across the world. That London is top
of the list is perhaps less surprising than the
fact that the other major provincial cities
in the UK are placed high in the list so
that, for example, the cost of space in
almost all British cities is higher than in
Paris. Clearly the high cost of industrial
floor space puts the UK at a disadvantage;
other things being equal it is cheaper to
locate production elsewhere.
The structure of the UK economy,
which is indicated in Table 2, shows the
character of the exports of the UK, France,
and Germany. Income from investments
abroad is much higher for the UK, but
leaving that aside, the value of UK exports
of services is just over half the value of
manufacturing exports, while for the other
two countries service exports are a small
fraction of the value of goods exported,
23. Dirk Pilat, Agnès Cimper,
Karsten Olsen & Colin Webb,
'The changing nature of manufacturing in OECD countries', STI
working paper, OECD, Paris
2006, p.6.
24. United Kingdom Balance of
Payments: The Pink Book 2005,
www.statistics.gov.uk; Germany:
German Balance of Payments in
2004 and Balance of Payments
by Region, Deutsche
Bundesbank, August 2005,
www.bundesbank.de; 2004
Rapport Annuel, La Balance des
Paiements et la Position
Extérieure de la France,
www.banque-france.fr
25. Eurostat, Industrial
Production Index, 2006
26. Ivor Tiefenbrun, RSA Journal,
August 2006,
www.rsa.org.uk/journal
27. http://www.statistik.badenwuerttemberg.de/StatistikPortal/en/en_jb21_jahrtabp1.asp
Table 2: Composition of exports in European economies24
UK
€bn
Germany
%
€bn
France
%
€bn
%
Goods
281
43
732
76
339
63
Services
146
22
114
12
89
17
Receipts of Income
205
32
107
11
87
16
19
3
16
1
21
4
650
100
969
100
536
100
Transfers
Totals
www.policyexchange.org.uk
• 19
The best laid plans
tant factor to consider. Apart from the
mere land price difference, the attitude of
planners and local communities is different. As they can feel the effects of a successful pro-development policy in their pockets (through a higher degree of local taxation), they are much more likely to support
companies wishing to locate in their areas.
A reader interrupts!
If I can get a word in. You go on and on
about 'the reader will realise', 'the reader
will have seen' and so on. This reader
wishes to point out that you cannot just
look at things at the national level.
Planning policy is also a regional policy.
That's why the price of land is high in
the South and low in the North. We
want the jobs to move north.
28. Kate Barker, Review of Land
Use Planning - Interim Report,
footnote, p.152, 2006
29. Harrow Council,
Development Control Committee
Agenda, 5 October 2006
30. The Guardian, 20 March 198
31. BBC, 24 July 1987
A regional policy?
Thank you for your contribution. As you
have realised, we do like to keep the reader’s ideas to the fore. Certainly the idea
that planning constraint in the South was
a regional policy to help the North was a
view held at the highest level of government as land and house prices rose in the
1980s. Nicholas Ridley, then Secretary of
State for the Environment, wrote in
March 1987 that “because we and local
planning authorities are maintaining
tighter planning controls in the South
East . . . development land prices in the
South East have risen to very high levels.
Industry and commerce not only face high
prices if they want to build and develop on
land; they also face high prices and a
shortage of labour as housing costs are
high and housing is in short supply. So
there is already a strong cost incentive for
businesses to look outside the prosperous
points of the South East to locate elsewhere”.30 A few months later, the Prime
Minister, Mrs Thatcher said in a television
interview “you will find differences in
house prices between North and South
will be the thing which persuades more
companies to move North”.31
Whatever may have been said earlier,
however, in November 1987 the then
Secretary of State for Trade and Industry,
Lord Young, denied there was any such
policy. Since then, to the best of our
knowledge, no government spokesman,
whether Labour or Conservative, has
argued that tight planning controls in
"Currently in London and to some extent the South East, developers are tending to buy up old houses, factories or disused warehous
es, paying the market price for the buildings, and secure change of use to develop new houses".28 Office blocks too may be redevel
oped for housing. To cite an example, planning permission was recently given to redevelop Raebarn House, a seven storey office block
on a main road in South Harrow, and replace it with an eight storey block with 150 dwellings of which 41 are 'affordable', plus 834
square metres of commercial floor space on the ground and first floors. The 'applicant statement' which accompanied the application
argued that much of the property was vacant and that offices in South Harrow were difficult to let. This economic argument that the
loss of the office space did not matter was accepted by London Borough of Harrow.29
From a wider economic view point, of course, one might note that the office space could have been filled more easily if lower rents
had been asked. Also that demolishing the building displaces office uses into other properties and this helps to maintain and raise office
rents elsewhere.
The conversion of offices also occurs, even on the fringe of London's central area where rents are considerably higher than in
Harrow. Thus in the Pimlico area it is now economically profitable to convert smaller, older office properties into housing, often 'period'
properties which had been converted from housing in the past. Because these are small properties there is no planning requirement to
provide 'affordable' housing. It is less profitable to convert larger office blocks because of the requirement that a high proportion of new
flats should be 'affordable'. (So the requirement that affordable homes should be built means that neither affordable not any other
homes get built. So house prices stay higher but, the other side of the coin, office rents remain lower.)
20
Control and constraint
southern England are an instrument of
regional policy. What economic advice
might have been tendered within government which led to the idea of planning
controls being used to forward regional
policy airbrushed out of history, we do not
know. After all, if such a policy never existed, there is no reason why any government
spokesman should put forward any reasons
why it ceased to exist!
Nevertheless, one may guess as to the
arguments which might have been put to
ministers. One we have already mentioned. At that time it was believed within the Department of the Environment
(DoE) that constraints on the availability
of land did not affect land prices. So
Ridley’s statement that land prices had
risen in the South East because of the
tight planning controls did not coincide
with the departmental line. Only some
years later, in 1992, did the DoE change
this view. But even if it is accepted that
tight planning controls cause land prices
to be higher, there is still one very important reason why the policy, as a regional
policy, should be disowned. There is, after
all, no reason to presume that economic
activity diverted from southern England
by high land and house prices would go
to areas of high unemployment and low
land prices elsewhere in the United
Kingdom. The UK was then, in 1987, a
part of a European Community in which
barriers to the movement of capital and
labour, goods and services, were as a matter of policy, being reduced to the lowest
level possible. Twenty years later the arguments are still stronger. What was a
Community of fifteen nations is now a
Union of twenty five. Furthermore, in the
era of globalisation the barriers to trade
are even lower than they were then.
Activities diverted from southern England
by higher land prices may move across the
English Channel or the Irish Sea, indeed
across the world, to any number of other
locations where land, and labour, will be
cheaper, and economic development will
be welcomed.
No doubt other politicians, since 1992,
have thought of advancing the argument
that planning policy is a kind of regional
policy, and no doubt the economic advisers at the Treasury and elsewhere in government persuaded them, as Lord Young
was presumably persuaded, that as a policy
it is economically flawed.
A reader interjects
Maybe I should not have mentioned
jobs. You do take things so literally.
What I meant to say is that all the
development was taking place in the
South. What is needed is ‘urban regeneration’. It’s about getting these old and
derelict sites redeveloped. Creating
towns and cities people want to live in.
You economists do not think about
things like that.
Urban regeneration
Well some economists do not, we agree,
but it is difficult to be an urban economist without caring about cities. But caring about cities is not everything. What
all economists do is try and work out the
consequences and the hidden costs of
actions. But in this case the question is
whether the costs exceed the benefits.
The problem is that the policies of
urban regeneration are, in many respects,
a kind of regional policy even if they are
not described as such. Such a regional
policy is implicit in the policies with
respect to the primacy of the development
of brown field sites put forward in the
Rogers Report and subsequently accepted
by the government.
Thus Lord Rogers and his team argued,
as we have said, that a high proportion of
new housing should be built on brown
field sites. What was not spelled out was
the spatial mismatch, i.e. that the demand
for housing was highest in the South
www.policyexchange.org.uk
• 21
The best laid plans
32. CB Richard Ellis, Global
Market Rents, May 2006,
www.cbre.com/USA/Research/M
arket+Reports/Global+Market+R
ents/
Occupation cost US$/square foot per annum
200
while the majority of the existing brown
field sites were in areas of low demand in
North England and elsewhere. By ignoring the location factor, the report
assumed an indifference to where the new
housing was to be provided. By this indifference they ignored the economic mechanisms, the market forces, which might
lead to new housing being built on these
brown field sites.
For, if this were to occur without any
other form of government intervention,
the price of land and the price of housing
would have to rise in the South to a level
at which migration from North to South
was curtailed, if not reversed, so that
demand was diverted to the regions where
there were existing brown field sites. As
prices rose outside the South it would
become economically feasible to redevelop these sites, and an urban renaissance
could then be proclaimed.
The same arguments apply to such an
urban policy as to the same ideas put forward as a regional policy, as well as some
other arguments. It is a policy of restricting supply. It involves high house and
land prices everywhere to ensure that it is
profitable to develop every existing brown
field site. Let us reiterate for clarity. The
‘brown fields first’ policy is only feasible
when land prices are extremely high, and
the effects of such a policy – for first-time
buyers and for the economy as a whole –
are profoundly negative. The demand for
space which is choked off can and does
result in the diversion of activities elsewhere in the world. It is fortunate that it
has been applied during a long period of
sustained growth. Of course it has one
major advantage as far as the government
is concerned. It apparently costs nothing
to the Exchequer. There are no subsidies
to pay out to encourage redevelopment.
From the point of view of the whole economy of course the costs are high, but they
are borne by the population as a whole.
A reader asks
Well, what are these costs? The only
things you’ve mentioned so far are that
the manufacturing industry may be
driven out, activities move abroad,
and firms, and people, face higher land
and house prices. But manufacturing
would have declined anyway, we’ve
had pretty near full employment for
many years, and the economy has been
growing steadily for the last fourteen or
fifteen years.
Figure 3: Office space occupation costs in world cities32
180
160
140
120
100
80
60
40
20
Lo
nd
To o n (W
k yo
e
(Inn st En
d
e
To Lon r C e ), En
k yo do
nt
g la
nd
(Ou n (C ral),
ter ity ), Jap
Ce
E n an
n tr g la
al)
n
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22
Control and constraint
The ‘hidden’ economic costs
That may be true, but the rate of economic growth over the past fifty years has been
slow relative to countries at a similar level
of development, such as Germany, France,
or Italy.33 The one thing that distinguishes
the UK from the others is the tight control
of the planning system. Given that the system is explicitly meant to control and limit
physical development, might it not also
limit and restrict economic development?
Might the light control exercised over economic development in Italy be related to
what Italians call ‘Il Sorpasso’, the overtaking of the British economy by the Italian
economy? There are costs, apart from the
ones, we have talked about, and if you will
allow we will set them out in three basic
groups.
High land prices and costs
If the cost of land is high then the cost of
using the space built on that land will also
be high. That is the rent of space for offices
and shops and other uses. All the evidence
confirms that the cost of occupying space
is high in the UK. Figure 3, for example,
indicates the total occupation costs in US$
per square foot per annum for a number of
cities in the UK, Europe and elsewhere in
the world.
It can be seen that to some extent the
cost is related to size. One would expect
this. Urban size brings benefits in terms of
what urban economists call ‘agglomeration
economies’, the sheer size of the market
allows for economies of scale in the division of labour, so that services of various
kinds are available at a lower cost than in
other, smaller, cities, if indeed they are
available at all in these smaller cities. But
increased size also brings costs. The sheer
physical size of the larger city means that
high rents have to be paid for a location at
or near the centre where travel costs are
minimised and the availability of these
services maximised.
So, in principle, the cost of space will be
correlated with size which will in turn be
correlated with the available agglomeration
economies. But what is evident from the figure is the cost of operating in British cities is
higher than one would expect, given their
size. Most noticeably the occupation costs of
space in central London are at least as high
as in Tokyo, and about 50 per cent higher
than in Paris, while the occupation costs of
space in Paris are not that much higher than
the cost of space in Edinburgh or
Manchester. What this means is that economic activities located in British cities are
paying a higher price for the available
economies than they would have to do elsewhere in the world. In an era of globalisation
it is, in our view, questionable as to how long
this can continue. Presumably the UK currently must have some sort of comparative
advantage (language, historical connections)
which justifies these rents. If it did not more
companies would have moved abroad and
rents would have fallen. Perhaps UK plc is
trading off the huge advantages wrought by
the Big Bang on the competitiveness of the
City of London, which has established itself
as the global centre for financial services. But
can we take this comparative advantage for
granted, and what happens if it disappears?
Commenting on a draft of this report,
Hugh Pavletich, co-author of the
Demographia International Housing
Affordability Survey, asked how long this
“premium” for British space had gone on
and whether it had increased markedly
recently. He argued that bearing in mind
that “lags” can be expected in market
responses, but once the response occurs
and the momentum gets underway, such a
development could be “lethal” and
extremely difficult to reverse. We would
agree that Britain is running a huge risk,
especially considering that services are even
easier to relocate than manufacturing.
The high cost of space affects not only
office space. It also affects other commercial
activities. Hotels and restaurants are both in
33. McKinsey Global Institute,
Driving Productivity Growth in
the UK Economy, 'Chapter 2: The
Productivity Problem', 1998
www.policyexchange.org.uk
• 23
The best laid plans
34. UBS, Prices and Earnings
Survey, 2006
the business of temporarily leasing space to
customers. Both these activities are expensive in the UK compared to elsewhere. In a
comparative study of the cost of a weekend
in a number of cities around the world, in
checking costs of hotels, eating, etc., London
came out as the most expensive.34 But anyone who has travelled both abroad and in
the UK will know for themselves that the
cost of hotels and restaurants is higher in the
UK than in other parts of the world.
High land prices and crowding
An activity such as a shop, which has to pay
a higher rent than a shop somewhere else,
can attain the higher income necessary to
pay this higher rent in different ways. As we
have just said, one way is to charge higher
prices. But it can also achieve this higher
turnover by serving more customers, by
using the space more intensively. The restaurant or hotel in the UK can both charge
higher prices than elsewhere but also has to
London: The Most Expensive City in the World
Every few years UBS carries out a standardised Prices and
Of course in large part this is because the high cost of space is
Earnings Survey. The most recent survey was conducted
an important determinant of the cost of a hotel room and a hotel
between February and July 2006, in 71 cities throughout the
meal. Since UBS separately costed out the price of a restaurant
world. Because of the wide geographical spread only the statis
meal and of stays in a four star and three star hotel, it is no sur
tics on prices and earnings for one British city, London, are col
prise to discover most of the same cities in the list of the most
lected, but these are revealing.
expensive. The table below lists the ten cities where eating out
A number of price comparisons are made – food, services,
costs the most, together with the hotel prices for those cities.
and so on – but, from our point of view, one of the most inter
esting comparisons made is of the price of a city break. The
Restaurant
4*
3*
researchers put together a basket of ten goods and services
comprising an overnight stay for two in a first class hotel, two
Tokyo
77
510
270
dinners with a bottle of the house red wine, one taxi ride, a 100
London
64
500
190
kilometres in a rental car, two outings to the theatre by public
Oslo
54
340
200
transport, and various small expenditures such as a paperback
Dublin
53
350
170
novel or a phone call. The package is most expensive in London,
Copenhagen
51
280
150
where the total cost is estimated as being $1180 (£672).
Helsinki
51
320
150
Milan
50
450
190
New York
50
450
250
Sydney
48
310
110
Zurich
47
390
170
The figures for the ten cities where the cost of a two day
break are highest are shown below:
US$
London
1,180
Although space is an important factor affecting the cost of
Tokyo
1,090
restaurants and hotels, it affects the cost of other goods and
940
services. The UBS researchers calculated ‘the cost of a weight
New York
920
ed basket of goods geared to Western European consumer
Oslo
920
habits, containing 122 goods and services’. The figures are given
Zurich
900
in the form of an index where New York is the base 100. They are
Helsinki
870
also given in two forms, one including rent, the other excluding
Paris
870
rent. When rent is excluded London is the second most expen
Milan
860
sive city, when housing costs are included it causes no surprise
Copenhagen
850
to find that London is the most expensive city in the world.
Geneva
24
Control and constraint
Living Cost Price Index
Here the first column gives wage levels gross, and the second col
(inc rent)
(exc rent)
London
105.5
110.6
culation which is possible is, given the wage and price levels, to cal
New York
umn gives wage levels net of taxes and social security. The next cal
100.0
100.0
culate from these figures an estimate of the domestic purchasing
Oslo
94.6
121.5
power of the salaries and wages paid. UBS give these figures for
Tokyo
93.4
106.8
gross pay, for hourly net pay and annual net income, but using an
Zurich
87.3
107.4
index of prices which excludes rents. On these calculations London
Copenhagen
86.3
109.2
ranks 23rd , (in terms of the purchasing power of gross hourly pay),
Geneva
85.8
102.9
20th (net hourly pay), and 17th (annual net income). Unfortunately
Dublin
84.3
98.3
UBS do not make similar calculations using an index of prices which
Chicago
82.2
92.2
includes rents. Given that London housing costs are substantially
higher than in almost all other cities, it is clear that in any such cal
Of course if living in London is expensive then high salaries and
culation London would drop substantially still lower in the rankings,
wages have to be paid to compensate, so it is also no surprise
to 30th or 40th, well down the list, and probably near the bottom of
to find that London wage levels are also high, but London
the list of cities in developed countries.
wage levels rank somewhat lower than London price levels.
Two conclusions can be drawn. One, which is not our concern
Once again these are given as an index where New York is the
in this report, is that Londoners who rent or have only recently
base.
bought their homes are much worse off than they might be in
almost any city in any developed economy, especially given the
Wage level indices
(gross)
(net)
nature of the London property market with high levels of renting..
The second, which is our concern here, is that London employers
Copenhagen
118.2
95.7
have to pay wages which are high relative to the rest of the world
Oslo
117.0
110.8
because of the high cost of living, a high cost in large part because
Zurich
115.1
124.2
of the constraints on land supply imposed by the UK land use plan
Geneva
111.0
115.4
ning system. Thus the cost is high to employers but the benefit to
New York
100.0
100.0
employees is low – the worst of outcomes. Indeed, given the lop
89.2
96.0
sided nature of London’s economy and it’s overreliance on financial
London
Chicago
88.3
94.7
services – which offer very high wages to a relatively small number
Dublin
88.3
104.6
of workers – the real situation for the average London worker is like
Frankfurt
87.6
85.5
ly to be even worse, with the miserable combination of high costs
Brussels
86.8
78.2
and low wages leading to a low quality of life.
operate closer to full capacity. Sometimes
this ‘crowding’ may be relatively unimportant. There may be fewer petrol stations
available than there might be in other countries, but provided you do not run out of
petrol, then the fact that the number of cars
passing through is high is unimportant to
the consumer. In other cases it matters.
Shops and other facilities are more crowded.
A case in point is the attempt by many, if not
most, London restaurants to try to achieve
two, if not more sittings, in an evening. The
cost of the meal appears in the National
Income Statistics. The fact that one may be
required to arrive earlier or later than one
would wish, and to vacate the table within
two hours does not. It is ‘just an externality’.
But it is still a cost, the kind of thing which
makes people think of emigrating, one of
those things that affects the quality of life.
Lack of choice
As the high cost of space impacts on the
consumer in the form of higher prices and
more crowded facilities, so it also has an
impact in influencing what it is profitable
to supply. To achieve a high turnover it
may also be profitable to limit what is supplied. So a shop limits the range of choice
in its stock. Stocking a large number of
products occupies space and space is valuwww.policyexchange.org.uk
• 25
The best laid plans
More Britons consider move abroad
More British people than ever before want to turn dreams of a foreign life into reality, a poll for the BBC suggests.
About 1,000 people were questioned for the survey and a majority said they had considered emigrating, little change from a similar
2003 poll.
However, the number hoping to move in the near future has almost doubled.
The BBC is appealing for information on Britons abroad as part of a major project to count expats accurately.
According to the national poll, more than half of British people have considered emigrating in their life time.
But when asked about whether they would actually ever go, 13% said they were hoping to in the near future, almost twice the num
ber asked the question in 2003.
Young people were the most likely to want to leave, with a quarter saying they were hoping to live abroad.
When asked why they would go, the most important reasons were a better quality of life, better weather and a feeling that the UK is
too expensive.35
35. http://news.bbc.co.uk./1/hi/uk/
523723.stm, 2 August 2006
able. Lines which are sold less frequently
are therefore not stocked. The range of
products may be deliberately limited to
those which it is known will sell well. In
this way the space occupied by the stock
can be kept low relative to turnover.
This has a number of consequences. It certainly encourages the existence of chains of
stores which, through advertising their
brands and keeping a tight control on product range, can achieve a high turnover with a
limited range of products. Thus the range of
IKEA – Product pricing round the world
£1144, but this would ignore the fact that the European coun-
The Swedish firm IKEA sells its products round Europe, indeed
tries charge VAT, which is not charged in the US. On the other
throughout the world. The products are standardised, as are the
hand, as every visitor to the US knows, a sales tax is levied at
stores, and as are the catalogues, which can be viewed online.
the time of purchase but not included in the quoted price, and
Given this standardisation of product we thought that it might be
this tax varies from state to state.
of interest to find out whether IKEA’s prices were higher in the
Of course, the rates of VAT also vary between European
UK than elsewhere. An initial search for the prices of three items
countries. It is worth noting that the UK’s rate of 17.5 per cent
(Poang armchair, Tylosand sofa, and Sultan bed) in IKEA’s cata
is in fact lower than that of the two next most expensive coun-
logues confirmed that all three were more expensive in the UK
tries, France (19.6 per cent) and Italy (20 per cent).
than in the rest of Europe. However, there was otherwise no
£
clear ordering of prices by country. We encouraged our research
assistant to add another three items to the list, and to search on
a world wide basis. He added a Varde sideboard, a Leksvik
UK
1483
wardrobe, and a Forsby table to the list. The table below gives
France
1453
the total cost of the six items for the preenlargement European
Italy
1450
Union countries where all six were available (which curiously
Norway
1380
includes Denmark but not Sweden). It can be seen that the UK
Spain/Portugal
1358
still heads the list of European countries, though the items
Austria
1338
added to the list were cheaper in some other countries than in
Finland
1328
the UK.
Denmark
1316
We limited the list to these countries because differences in
Belgium
1290
tax rates and tax policies can make comparisons difficult. For
Holland
1249
example the US would be cheapest of all, with a total cost of
Germany
1229
26
Control and constraint
products available to the consumer is limited
but through ‘mass marketing’ rather than
‘mass production’. It also encourages a trend
towards what has been called the ‘clone city’
where the shops and stores are the same in
each town, stock the same products, and sell
the same services.36 It also discourages the
small entrepreneur, in two ways. First, the
initial investment in an activity is high
because a high rent has to be paid. Second, a
high turnover has to be achieved quickly in
order to pay this rent.
Obviously these features will be evident in
any large city anywhere in the world, because
the cost of space is higher in every large city.
But commercial rents in British cities are
high relative to their size. So the ‘clone city’
phenomenon is more widespread in the UK
than it is likely to be in other countries with
lower rents and looser planning controls.
A reader intervenes
Well, I’ve listened to what you have to
say about these costs – I hear what you
say. But what you have not mentioned
is the most important reason for these
controls. The fact is they are necessary
to ensure the survival of the planet. We
have to save land and try to make sure
that cities are as dense as possible so
that people do not have to travel far so
that we use as little fossil fuel as possible. We have to do our bit to save the
planet from global warming.
Sustainability
We take your point, and we would wish that
the planning policies being pursued actually
did help to do this. But it is extremely doubtful that they actually do, and quite probable
that they make things worse.
For example, the argument that higher
density development results in less carbon
fuel being used is fairly thoroughly dealt with
in Kate Barker’s Interim Report on the planning system.37 It does not seem as if there is
any relationship between the density of dif-
ferent cities and fuel use in those cities once
differences in the price of fuel are taken into
account. From this one has to conclude that
if you want to reduce the use of fuel then
raise its price, through taxation if necessary,
to what is regarded as the optimal level and
then let urban densities adjust to that. There
is, indeed, some evidence from Holland and
Norway that at high densities people wish to
get away at weekends so that whatever savings there might be from higher densities are
wiped out as by people driving or flying to
second homes or weekend breaks.38
Leaving aside the question of fuel use, the
other problem with the idea that higher densities are necessary to save the planet is that
higher densities cost more to build; they may
save land but they use more of other
resources. The evidence on office blocks suggests that the construction cost per square
metre of a high rise office block is between
20% and 35% higher than for a medium
height block. Because more space is taken by
the structure the high rise building is about
10% less efficient.39 Higher density buildings
can also cost more to run. For example, any
two storey building open to the public, will,
since the Disability Discrimination Act,
have to have a lift. Lifts are expensive, and
they have to be maintained and run. Besides,
some manufacturing activities are uneconomical other than in a single storey building. So manufacturing may simply be driven
elsewhere, with, of course, an increased cost
of transporting the goods produced to the
British consumer or producer.
A senior planner once remarked that he
was entirely in favour of multi-storey car
parks because they saved land. But in the case
of car parks it is even more evident that saving land does not necessarily save the planet.
The cost of providing parking spaces on the
ground is about £1,000 per space, while the
cost of providing parking spaces in a multistorey car park many times higher.40 Land
may be saved, but steel, concrete, and fuel are
used to provide substitute space in the air.
Sustainability is reduced by multi-storey car
36. New Economics Foundation,
Clone Town Britain: The loss of
local identity on the nation's high
streets, 2004
37. Kate Barker, Review of Land
Use Planning - Interim Report,
pp.156-9, 2006
38. Erling Holden and Ingrid
Norland, 'Three Challenges for
the Compact City as a
Sustainable Urban Form', Urban
Studies, November 2005
39. Kate Barker, Review of Land
Use Planning - Interim Report,
2006, p.162
40. See, for example, Gardiner &
Theobald, Office Business Parks A benchmarking analyis, June
2001, which estimates that decked
parking will cost between £3,200
and £10,000 per space - the more
storeys, the more expensive
(http://www.construction-cost-consultancy.com/Economics/images/O
fficeBusParks.pdf).
www.policyexchange.org.uk
• 27
The best laid plans
parks, but this is not evident if the only measure of sustainability is saving land.
Besides, it is not at all clear why it should
be that saving land should have priority. After
all, the land saved is apparently not needed
for agriculture. About 10 per cent of the land
which could be used for agriculture in South
East England has been ‘set aside’ because the
Common Agricultural Policy encourages
overproduction.41 The resulting surpluses
then have to be sold outside the European
Union. This is detrimental to, some would
say ‘wrecks’, the agricultural systems of many
developing countries, and also prevents them
from exporting to the EU to pay for other
goods and services.
Nor is it evident that other countries view
saving land as an important policy objective.
If no other country is taking ‘saving land’ as
seriously as the absolute and overriding policy objective does in the UK, then maybe the
British view is wrong and saving land is not
important. It also follows from this that the
UK’s contribution to global sustainability
through land saving is of negligible importance, at best. That is if it is not actually
counter-productive, since it results in other
resources are used up in the attempt to use as
intensively as possible the land where development is actually permitted. One also
should not forget that that is less than 10 per
cent of the land area of the UK, 90 per cent
of which remains undeveloped.
41. The Guardian, 'The EU common agricultural policy', 26 June
2003, http://www.guardian.co.uk/
theissues/article/0,,975350,00.ht
ml
28
A Reader Confesses
I’m afraid that when it comes down to it
there’s nothing you can say which would
persuade me. The fact is I just do not like
the countryside being built over. I pay my
dues to the Campaign to Protect Rural
England (CPRE) and I support their
aim, to stop, or at worst, minimise
building on green field sites. Frankly I
live just outside a large town, and I do
not want my view spoilt and I do not
want anything built near my home.
Incomes and Redistribution
Well, as you say, there is nothing which
would persuade you to change your views.
But as economists we have to point out the
costs of saving land. You are very aware of
the benefits to you, and what we are trying
to do is to indicate the costs, particularly
the costs which may be borne by those
who do not benefit in the same way as you
do. These costs may not be as obvious as a
building spoiling the view but they should
be taken into account in making policy.
There is also the interrelated question of
the distribution of those costs and benefits.
It is obvious that when house prices rise
one group is made better off, that is most
existing home owners, but another group
is made worse off, would-be future home
owners and those existing home owners
who will want, in the future, to move into
larger properties. The same redistribution
occurs when industrial and commercial
land increases in price. Property prices and
rents rise. Products and services cost more.
There is more crowding and congestion.
The whole population is made worse off.
But of course the owners of commercial
land and property gain. The rents which
can be charged are higher, and the properties they own are worth more.
Thus the operation of the planning system redistributes wealth, and it redistributes it in favour of property owners. To
state it clearly: our planning system is a system that works against the poor and the
young while it serves the land and property owners. Of course, some of this property is owned by the firms which use and
occupy it. But while this was the general
pattern up to the second half of the 20th
century, it has become much rarer since
then. As the value of commercial land
increased in the 1950s, as the implicit policy of constraint started to bite, many retail
and manufacturing firms failed to notice
and react to the increase in the value of
their properties. A number of firms were
taken over, broken up, and ‘asset stripped’.
Control and constraint
When commercial firms realised this danger they also realised that one way of avoiding the danger was to lease their properties
rather than own them. Many such companies therefore sold the properties they then
occupied and leased them back. The result
is that in the UK most commercial property is owned by financial institutions of one
kind or another. Some may be property
companies, some may be in life assurance,
and much is in the hands of pension funds.
Of course, some may be in private hands,
as with the Grosvenor Estate which manages the properties in Belgravia and
Mayfair owned by the Duke of
Westminster. As a matter of fact, directly
or indirectly a proportion is foreign
owned. For example, the recent takeover of
BAA plc means that the most important
UK airports are now owned by a Spanish
company, Ferrovial, and the takeover of
P&O means that a number of British ports
are owned by a company based in Dubai.
So working out exactly who owns and
who loses is difficult, though it is certain
that the overall effect is regressive, that the
policy of constraint favours the better off.
It also favours those in possession of land,
while the cost of starting a business is
raised. Thus it favours wealth rather than
enterprise. So that any relaxation in the
policy of constraint would be more welcome to the less well off and the young, the
two being often synonymous!
However, one conclusion may need to
be restated to make the position clear.
Because some people lose and some people
gain from rising land and property prices,
the net effect on the UK’s national income
is less than it might appear. Certainly less
than it might be perceived by, say, a young
couple renting their home, without investments and without any significant accrued
pension contributions. What they face are
the increases in the cost of living without
compensating increases in their wealth.
Nevertheless, there is an efficiency effect,
quite apart from the distributional effect.
The British economy is less efficient than it
might be because a productive asset, land,
is deliberately, as a matter of policy, left
idle.
Coventry Airport Terminal
In 2003 Coventry Airport was bought by TUI AG, a German company which owns Monarch Airline, Thompson Travel and Thomsonfly.
Thomsonfly began flights out of Coventry in March 2004. The airport is actually located a few miles south of Coventry so that Warwick
District Council is its local planning authority.
In 2003 an interim flight terminal was built and there followed an argument between Warwick DC and TUI as to whether planning
permission should have been obtained to build it. The Council took TUI to court to get the building demolished but the case was thrown
out in June 2004. The judge described the Council’s action as “draconian”, an “abuse” of the court process, and “wholly inappropri
ate”. The cost to the Council of the court action was £300,000. The Council then issued an enforcement order to get the building
demolished on the grounds that it did not have planning permission. Unsurprisingly, TUI appealed against the order and an inquiry was
held which lasted nearly six months, the longest such inquiry on record, from February to July 2005. The inspector reported to the
Secretary of State who upheld the appeal, some eight months later in April 2006.
All this was for an interim building which will exist for only a few years before it is replaced by a permanent building. TUI put in an
application for this permanent building in October 2004. They appealed a year later, in September 2005, because the Council had not
made a decision, one way or the other. The appeal was held between January and July 2006. The inspector will deliver his report and
recommendation to the Secretaries of State in early 2007, a decision from them is expected by the autumn, nearly three years after the
original application for the permanent building.
It is said that TUI regrets having bought the airport. We are not surprised. In Germany an airport improvement would be regarded
with favour by any local authority, not, as would seem to be the case here, something to be fought against tooth and nail.
Sources; www.warwickdc.gov.uk, www.leamingtonspatoday.co.uk, www.newsvote.bbc.co.uk
www.policyexchange.org.uk
• 29
3
Economic growth,
delay and the level
of detail
Summary
The efficiency of the British economy is
reduced by the planning system in other
ways. We have concentrated on the effects
of constraint because these effects seemed
to us to be important, but less obvious
than other factors. In this chapter we turn
from the economic impact of the policy of
constraint to look at the implications of
the planning system itself for the economic growth of the UK economy. The other
main problem is the system’s complexity. It
is complex, legalistic and results in delay.
This delay means that investment takes
place later than it should, with a consequent loss of efficiency. A further problem
is the level of detail which the British planning system tries to control, a factor which,
of itself, builds in delays. In a final section
we note the findings of the McKinsey
Report on the British economy which
indicated that the planning system could
protect local monopolies, hinder development, and prevent clusters of firms growing up to take advantage of the economies
resulting from spatial proximity.
42. Alan W. Evans & Geoffrey
Keogh, 'The private and social
costs of planning delay', Urban
Studies, June 1992
43. Sir Patrick Abercrombie,
Town and Country Planning, ed.
Rigby Childs, 1959
44. Chris Foster & Christine
Whitehead, 'The Layfield Report
on the Greater London
Development Plan', Economica,
1973
30
Delay and inefficiency
The problem of delay is the most obvious
systemic problem, a problem recently
analysed in Barker’s Interim Report on the
planning system. Some years ago it was
argued that it was possible that the delays
inherent in the British planning system
might, in fact, impose small social costs,
but with the caveat, provided the system
were economically rational.42 If it were
rational, then the assessment of whether or
not a proposed development should be
permitted involved a balancing of the
social benefits and social costs. Where the
costs greatly exceeded the benefits, or the
benefits greatly exceeded the cost, the decision would be obvious and could be made
quickly. Only where the costs and benefits
were closely balanced would the decision
be more difficult to make, and the process
would take longer. But then if the costs
and benefits were closely balanced the
social cost of delay would be small because
the net benefit of the development would
be small.
The trouble is that this argument
depends on an acceptance of the idea that
the UK planning system is economically
rational. Yet there is very little reason to
suppose that it is. After all, the attitude of
planners to economics and economists has
been generally hostile. The founding father
of planning Abercrombie described an
economist as “A muddler talking about the
liberty of the individual and the laws of
supply and demand”.43 In the 1970s an
inquiry into the Greater London
Development Plan remarked that the real
income of the people of London was not
their concern – in other words they were
concerned only with land use, not with
anything else.44 Similar views were
expressed only recently in a survey of local
authority planners, namely that it was up
Economic growth, delay and the level of detail
to the planners to plan and the market to
adjust to the plan.45 Comments such as
these do not suggest that the process of
decision-making is based on a balancing of
social costs and social benefits. Instead the
system seems to be based on the views of
planners as to the best pattern of land use,
even though the best land use plan might
make people worse off, on balance, than a
plan which was better for the whole population but resulted in a land use pattern
which was not perceived to be as good.
Indeed this presumption is at the core of
the argument regarding the policy of constraint which we have set out earlier. No
one seeks to deny that people prefer development not to take place on green field
sites. But few people realise that basing a
policy on this preference makes them
worse off in other ways.
The fact that the people responsible for
the system are, if not planners, politicians,
means that there is built in to the system a
responsiveness to the most vocal, to those
who shout loudest and longest. Part of this
responsiveness is to ensure that if a decision has to be taken then the objectors
should be given every opportunity to have
their say. In this way the politicians can
then say to the objectors that their views
have been heard and where possible taken
into account. Objectors can feel that they
have, at least, delayed the development.
Thus delay is, for political reasons, built
into the system.
At the very lowest level we know of cases
where planning committees have required
two site visits before deciding fairly simple
applications, in one case a small rear extension. In each of these cases there has been
intense vocal opposition from one objector. Although the eventual decision was
obvious from the start, the operation of the
system resulted in delays ranging from a
few months to over a year.
At the other extreme, of course, we have
the example of Terminal 5 at Heathrow
Airport. That alone should be enough to
persuade anyone that the system is not economically rational. It should not take
eighteen years for a decision to be made as
to the construction of a building, particularly when it was accepted years before that
a fifth terminal was necessary. To rub salt
in to the wound, during the period the
British were coming to a decision, in Hong
Kong an entire new airport had been built
on a newly created artificial island.
The amount of time, effort and other resources which
“
can be put into making planning decisions is extraordinary
when compared to the time, effort and resources put into
making other government decisions
The amount of time, effort and other
resources which can be put into making
planning decisions is extraordinary when
compared to the time, effort and resources
put into making other government decisions. In all other areas of the economy
decisions are generally made quickly, after
a brief review of the evidence. Indeed decisions as to possible changes in the planning
system itself are taken with less input than
might go into a planning inquiry into the
construction of a single building. For
example, the inquiry in 2005 into the
interim terminal at Coventry Airport cost
Warwick District Council some £300,000,
and the formal inquiry alone took 322
hours.46 On the other hand Kate Barker’s
Review of the planning system, which has
just reported, will have taken less than a
year from the date of its announcement to
the publication of its report, and will have
cost considerably less. So a report on the
system can be carried out far more quickly
and informally than an inquiry within the
system. Ms Barker’s inquiry has not
required barristers and lawyers and the formal examination of witnesses. Laws and
taxes can be changed with a similar lack of
formal inquiry. Only permission for the
”
45. Helen Jarvis & Wendy
Russell, The use of prices in
planning for housing,
Department of Land Economy,
University of Cambridge, 1999
46. www.leamingtonspatoday.co.uk
www.policyexchange.org.uk
• 31
The best laid plans
47. Future Heathrow press
releases, 5 February 2006 and
20 March 2006, www.futureheathrow.org
construction of a building apparently warrants such a degree of inquiry and investigation.
This problem of delay is a sore point
with some of us regional scientists. It may
be a few years ago now, but we remember
an international conference and the derision with which the Dutch regional scientists regarded the Terminal 5 imbroglio;
Amsterdam’s Schiphol, London’s rival as a
European hub, having been extended
while the British Terminal 5 inquiry
ground lethargically towards its inevitable
conclusion. It is not just that Heathrow is
falling behind its European competitors
because of its antiquated and over-crowded
terminals. While other major European
airports have now built or are building new
runways, it is not clear if and when
Heathrow will eventually get its third runway, which is needed to increase its capacity and the number of destinations (Table
3). This means that Heathrow will slip
down European airport rankings. Clearly,
in terms of routes and passenger comfort
Frankfurt, Paris and Amsterdam are
already playing in a different league.
Britain – in fact London – lost its status as
Europe’s shipping hub to Rotterdam as a
result of the kind of delays and political
indecision that characterise our current
attitude towards major infrastructure projects. Heathrow’s pre-eminence as Europe’s
air hub should be take for granted at our
peril.
Certainly since then steps have been
taken to try to speed things up. But systems of regulation have their own dynamic; regulation becomes an activity for its
own sake. Politicians are always unwilling
to take decisions which might result in lost
votes. So a proposal that major applications such as Terminal 5 might be dealt
with in the same way as was the Channel
Tunnel, through an approval in principle
in Parliament, did not find favour with
MPs and was dropped. But the process can
and must be speeded up, after all the
French high speed rail link was completed
by the time the tunnel was opened, while
the British link is only just reaching completion. One wonders what the British railway promoters of the early 19th century
would have been able to achieve in similar
circumstances. But no doubt the British
planning system would have ensured that
the Industrial Revolution would have
occurred elsewhere. Clearly delays of this
magnitude have a significant economic
cost, reduce economic efficiency, and make
almost everyone worse off.
Efficiency and the regulation of detail
One of the things that the McKinsey
report on the competitiveness of the UK
Table 3: Major European airports47
Runways
Frankfurt
Paris CDG
Amsterdam
Munich
Heathrow
Max flights per hr
(March 06)
(August 06)
Growth (%)
3*
233
262
13
100/120
4
220
223
25
120
5
203
222
8
120
2**
179
204
52
n/a
2
178
180
3
85
* excludes new runway due by 2009, ** excludes new runway due by 2010
32
Scheduled nonstop routes
Economic growth, delay and the level of detail
Bekonscot - Believe it or not!
Bekonscot model village, in Beaconsfield, Bucks, is the world’s oldest model village. It was start
ed in 1929 as the hobby of one man, Richard Callingham, and has developed since then into a
one and a half acre miniature landscape of villages, castles, railways, churches and lakes. All prof
its go to charity. The models and the landscape are intended to represent the England of the
1930s. There is one aspect of the landscape which is not of the period, however. In the 1930s
you did not require planning permission to put up a house. Yet in 21st century England a planning
application has to be made before any new model building can be constructed, even though it
may be a onefifteenth scale model! The application is duly considered by the local authority for
six to eight weeks, and then approved. So far as anyone can remember no application has ever
been refused, and it is difficult, if not impossible, to see on what grounds permission might be refused. Visitors walking round the village do
sometimes see an area boarded up with a notice saying that planning permission has been applied for, and they tend to assume that this is
part of the makebelieve, a joke. It is not. This is prewar England transported into a postwar world.48
economy noted as a negative factor was the
level of regulation. This regulation, it was
argued, descended to a level of detail which
was not evident elsewhere. In the case with
which they were most concerned, the hotel
industry, the degree of regulation largely
derived from building regulation rather
than town planning controls, with sometimes a difficulty in deciding which is
which. It was a planning regulation, we
believe, which used to require that there
should always be two doors between toilet
facilities and a dining area. So that when
one of the authors built an extension the
builder advised him to put the second door
in the plan, and then remove it after the
building had been inspected. It is UK
building regulations that require that ordinary light switches are not permitted in
bath rooms. Nor are ordinary power sockets. Yet travelling round the world we note
that the UK seems to be unique in this. If
other countries find that a bathroom is the
best location for a washing machine and
that such a location carries little risk why
should the UK maintain such a regulation?
The truth is that the British are used to
a level of regulation which is greater, and
concerned with a greater level of detail,
than is true elsewhere. For example,
French, Italian, or American planning systems require only that the proposed building conform to certain requirements – in
general provided what is proposed is in line
with what the zoning ordinance for the
area then it is permitted. But the British
system requires that a detailed planning
application be submitted for which permission be given. Sometimes the process
can be nonsensical. A former colleague at
Reading drew our attention to a proposal
for a factory in Reading which was to be
blue in colour and on these grounds the
application was refused. But if the factory
had been built in any other colour it could,
without permission being required, be
painted blue.
In part, of course, this level of regulation
is one of the factors leading to delays. In
the case above a factory was, of course,
built, but somewhat later, since a new
application had to be submitted and
approved. From our own experience we
know of a student dormitory building
which was delayed for a year in order to
allow the local residents to vote on the
kind of brick that they would prefer. In
another case a building was delayed in
order that a tree could be moved at the
optimal time – November – only to find
out later that the tree, on removal, could
not be replanted so that the delay was
pointless.
It is a problem with any discussion of
the regulation of detail that the examples
which have to be given are so, well,
48. Alan W. Evans, visit to
Bekonscot
www.policyexchange.org.uk
• 33
The best laid plans
detailed. But that is the point of the argument. Because the level of control deals
with such matters of detail it is possible to
refuse applications on matters of detail.
Even though it must be quite clear to an
unbiased observer that the delay outweighs
any possible gain from the small alteration
in the overall plan which will occur.
Moreover the degree of control can be,
indeed almost certainly is, counter productive. The planning officers and the politicians on the development control committee have to approve the architectural design
of the proposed building. Something
which is too different may cause refusal,
leading to increased costs and delay. It is
safer to go for the anodyne, for uniformity
and blandness - unless, of course, an ‘architectural’ name can be brought in. No committee likes to be seen as philistine, so a
Foster or a Rogers building may get
approved. But someone unknown at the
beginning of their career may have much
greater difficulty.
Planning and economic growth:
the McKinsey Report
Over the past forty or fifty years a
favoured topic of research and comment
by British, and other, economists has been
the reasons for the slow rate of growth of
the British economy relative to the rate of
growth of other industrialised countries.
The usual suspects have been paraded –
obstructive trade unions, inferior management, lack of investment, inadequate
training and education, failure to follow
up innovations, perverse macroeconomic
policies, and so on. Only recently has
Growth Italian Style
growth is precisely the lack of controls so that economic devel
Over the past twentyfive years, in most years, one of the
opment occurs in a way that could not be permitted in the UK.
authors has spent his summer holidays in a small Italian town
The 1989 guide to the Abruzzo (English Edition – Novara: Istituto
on the Adriatic coast in a region called the Abruzzo. Planning
Geografico de Agostini, p.202) notes that the town of
controls in the area are fairly light and of course in Italy these
“Sant’Egidio alla Vibrata is the ‘capital’ of the provinces’ treasure
controls are widely ignored. It is estimated that 30 per cent of
chest [the Valley of the Vibrata] which led The Times newspaper
the dwellings built over the last thirty years or so are abusivi,
to write: “Could not some of the more isolated English villages or
that is, built without planning permission. The lightness of the
those in the grip of the coal mining crisis take example from this
degree of control can be seen in the building, which has
little known valley in Central Italy?” But as the guide continues “It
occurred, houses on the hills, factories in the valleys. From a
is a pleasure to surprise the English; but here no one is surprised
British planner’s point of view all this scattered development is
any more because everyone knows what happened and how.
disgraceful, the countryside should be kept neat and tidy. Yet
Here, as in [the other towns in the Valley], every house has
the British do not seem to mind, those that come to Italy on
turned into a factory and the motto ‘small is beautiful’ has made
holiday or to buy a second home in Tuscany or Umbria, or,
them big”!
now, in the Marche, and the Abruzzo. Maybe this development
is not so bad after all.
But of course it would be impossible to turn “every house into
a factory” with the British planning system, and, it also has to be
Or maybe it is also that the cost of flats and houses is not that
said, with the British as neighbours. The Italian view would seem
high, so that the amount of development is seen as a visual price
to be that what your neighbours do is their business, not yours.
worth paying for the fact that a second home is affordable,
You certainly do not report them to the authorities, and then they
hotels are not that expensive, and a very good meal can be had
will not report you. Whereas in the UK even having an office in
at a very reasonable price.
your home is likely to have the neighbours protesting, and the
Clearly the local view is that development is to be encour
first attempt to turn your home into a factory would be stopped.
aged. The Abruzzo is in the Mezzogiorno, the poorer, southern,
Development such as occurred in the Val Vibrata and elsewhere
part of Italy. But it has also been, over the past thirty years, the
would be impossible in the UK. The first shoots would be treat
fastest growing region of Italy. One factor that has assisted this
ed as weeds, to be pulled out.
34
Economic growth, delay and the level of detail
town planning been added to the list of
suspects, in the McKinsey Report of
1998.49 It might be thought that this neglect would indicate that it has not been
seen as a prime suspect, but this may say
more about the detectives than it does
about the crime or the criminal. The
studies have been written by ‘mainstream’
economists, and, particularly in the UK,
such economists are trained to regard
national economies as aspatial points, and
to ignore space, distance, location and
land as unimportant.
For this neglect is otherwise inexplicable. After all, concern over the slow rate of
growth of the UK economy only began to
be expressed after the planning system had
been put in place, in the 1947 Act.
Moreover, while other suspects would deny
any intention of slowing economic growth,
the planning system in the UK has been
intended to constrain and restrict physical
development. At the same time planners,
as we have said earlier, have declared themselves uninterested in economics and in
economic welfare. Indeed, it is sometimes
made explicit that the constraint of physical development may restrict economic
development. The revised Oxfordshire
Structure Plan of the early 1990s states
that they “do not intend to restrain unduly” the growth of firms in Oxfordshire.
But, translated out of Orwellian
Newspeak, what this actually means is that
they do intend to restrain the growth of
firms in Oxfordshire, but “not unduly”.
But how much is unduly? One percentage
point? Two? But if the system reduced the
rate of growth to 2.5 per cent when it
might have been three or more this would
entirely explain the UK’s slow rate of
growth.
The neglect by the economics profession of the planning system as a possible
culprit over the years is, in these terms,
extraordinary. It is as though they ignored
the figure in the shadows with the smoking
gun muttering ‘I didn’t mean to do it’
because they were looking, like the drunk
who had lost his keys, over where the light
was better! Fortunately this neglect, following the McKinsey Report and the Barker
Review, is now at an end. Though most
mainstream economists may continue to
look where, for them, the light is better,
town planning has at last been dragged
into the policy limelight. Indeed the
McKinsey Report did not merely regard
the planning system as a possible factor
slowing economic growth but one of the
two main factors. The Report stated that
“the most pervasive explanation [for the
failure to adopt global best practices] lies in
the effect of regulations governing product
markets and land use on competitive
behaviour, investment and pricing”
(Introduction, p.2). In recent years, the
OECD has also highlighted planning as
one of the obstacles to economic growth in
the UK.50
But in what ways may it be responsible?
Some we have already discussed. The economy has been slowed by the policy of constraint. This policy has led to a bias against
economic activities which use land extensively, and in favour of activities which use
land intensively. This leads to more congested facilities of every kind, and to higher prices for many goods and services
which could be obtained more cheaply
abroad.
Rather than looking at these general
influences, as we have done, the format of
the McKinsey Report involved a number
of studies of particular industries – food
processing, telecommunications, food
retailing, hotels, and software. They found
that the last three of these were particularly affected by land use regulation, though
in different ways. These were, in effect, the
protection or creation of local monopolies
in the case of food retailing, the difficulty
of constructing new facilities in the case of
hotels, and the difficulty of obtaining
economies of scale through agglomeration
in the case of software.
49. McKinsey Global Institute,
Driving Productivity and Growth
in the British Economy, 1998
50. OECD, Economic Survey of
the United Kingdom 2005,
http://www.oecd.org/document/43/0,2340,en_2649_34569
_35456619_1_1_1_1,00.html
www.policyexchange.org.uk
• 35
The best laid plans
51. Financial Times, 'Rivals call
for brakes on Tesco juggernaut',
21 October 2006
52. Daily Telegraph,
'Supermarkets feel a nip of nostalgia in the air', 13 February
2006, www.telegraph.co.uk/
money/main.jhtml?xml=/money/2
006/02/13/cnshop13.xml&menuI
d=242&sSheet=/portal/2006/02/13/ixportal.html
Local monopolies
With respect to food retailing it was argued
that “the complex, locally driven planning
regime … made it difficult, time consuming and expensive for food retailers to find
new sites and expand” (Food Retailing,
p.2). Bluntly, having gained planning permission for an out of town superstore
Sainsbury, Tesco, or any other supermarket
chain, could then relax safe in the knowledge that no other competitor would be
able to enter the local market. Indeed the
system may be manipulated by obtaining
permission for other sites, but then not
carrying out the development. Local planning committees will then be even more
reluctant to grant permission for another,
competing, store. Put at its worst, a
monopoly position means that a period of
price cutting to drive the local small shops
out of business can then be followed by
higher prices which its local monopoly
allows, safe in the knowledge that the planning system will ensure that no competing
supermarket would be permitted.
Industrial economics makes much of the
concept of ‘contestability’– a monopoly
has to bear in mind that a market may be
contested by a new entrant. The harder it
is for a new competitor to enter the market, the greater the monopoly power which
can be exercised by the monopolist.
Clearly the planning system makes local
markets harder to enter for larger retailers
but especially for smaller, independent
ones.
The then President of the Royal Town
Planning Institute responded that the criticisms levelled at the planning system
could be ignored because the system was
generally supported by industry. What this
response revealed was a failure to understand the argument. What he was saying
was that industry, in this case retailers,
The Competition Commission is currently carrying out an inquiry
of assessing the viability of commercial activity, that is trying to
into the grocery market. The submissions by the supermarkets
second guess the market. Clearly the aim is to limit competition
can be read on the Commission’s website. Tesco, the dominant
by controlling entry.
chain, argues that the planning regime does not significantly
We would not wish to forecast the Commission’s findings.
affect the growth opportunities of retail businesses or deter
We merely note, without comment, that we observed that in the
entry. The other major chains take a different view. ASDA argues
2006 Party Conference season Tesco organised joint fringe
that the current planning regime is anticompetitive, and both
events with the Campaign for the Protection of Rural England.
Morrisons and Sainsbury’s take a similar stance. Four planning
We also note that, in the USA, where Tesco is expanding, it has
tests apply to new stores outside town centres:
praised the absence of planning regulations which hamper
development.52 This apparent contradiction illustrates the plan
1
2
3
4
Quantitative need: the proposed shop must be judged to
ning paradox perfectly. In the UK market, where it is the domi
help meet a shortfall in existing capacity.
nant ‘insider’, it makes sense for Tesco to favour a policy that
Qualitative need: takes into account questions such as
keeps out the competition where possible. In the US, where it is
whether existing shops have problems with long queues,
an ‘outsider’, trying to gain a foothold in a new market dominat
car park congestion, old facilities and so on.
ed by larger established players, it will obviously favour a plan
The sequential test: according to which it has to be shown
ning policy that allows it a foothold. To highlight this paradox is
that the proposed store could not be located in or nearer to
not to condemn Tesco’s behaviour or suggest it alone acts like
the town centre.
this. It makes perfect commercial sense for companies in such
A retail impact assessment: which analyses the impact of
a position to behave in this way. But the key point is that the
the proposed shop on existing town centre stores.
planning system should not be there to protect existing domi
51
nant industries, but should aim to drive competition and eco
Whatever may be the view of the Commission, it is evident that
nomic growth while taking account of social and environmental
these tests put town planners and councillors into the position
factors. The UK planning system fails spectacularly in this regard
36
Economic growth, delay and the level of detail
were, in his view, happy with a system
which restricted competition. We have
found a similar response in our own
inquiries. Those firms and developers
already operating in the market are happy
with it because their interests are protected. This is in line with what is called the
‘capture theory of regulation’. In the end, it
is argued, regulators and regulatory systems are ‘captured’ by those who are supposed to be being regulated because they
have more of an interest in what happens
than anyone else. The regulation then is
done in their interest rather than anyone
else’s. This entrenchment of local monopoly can be seen elsewhere in the operation
of the system. For example the developers
appearing at an Enquiry in Public into a
local development plan may want their
land designated as suitable for development for housing, but that does not mean
that they want every other developer’s land
so designated. Their land but no other
developer’s land would be the answer to
their silent prayer. The less of everybody
else’s land that is designated the higher will
be their profits. This entrenchment of local
monopoly also occurs with respect to the
current system of ‘sequential development’. The brown field sites nearer the
centre of the town are supposed to be built
on before development is allowed further
out, thus of course allowing the owners of
those preferred sites to charge more for
their land.
The President of the RTPI also
responded that similar criticisms had
been made before, at the end of the
1980s. The implication was that they had
been made, but then answered and refuted. But in the Institute of Economic
Affairs report, No Room! No Room!,53 to
which he was presumably referring, the
criticisms were not made in such detail
and they were neither answered nor
refuted, just ignored, as the more trenchant criticisms in the McKinsey Report
were also ignored at the time.
Regulation
With respect to the hotel industry the
report points out that planning and listing
regulations “impose higher cost design and
construction methods. In some cases planning restrictions actually prevent new
hotels being built … Depending on the
specific situation, experts indicate that
planning and listing regulations account
for between 15 and 50 per cent of the difference between UK and US construction
costs” (Hotels, p.7). They specifically drew
attention to one apparent consequence. In
the UK 75 per cent of the stock of hotel
rooms was over forty years old and nearly
half were over a hundred years old. For
comparison the proportions in France were
35 per cent and 14 per cent.54 Thus the
constraints on the availability of land and
on construction mean that hotel rooms are
more expensive in the UK than elsewhere.
Constraint
The third industry which the Institute
regarded as affected by the land use planning system was the software industry. The
report drew attention to the benefits in
terms of economic development when “a
critical mass of successful companies are
located together”, and noted that “the
most successful clusters form naturally
through market forces” (Software, p.11)
but pointed out that “planning regulations,
particularly in the Cambridge area, have
restricted the expansion of high tech clusters” (p.14). A similar argument has also
been heard recently, also with respect to
the Cambridge area, regarding clustering
in the biotech industry.
The land use planning problem can be
exemplified by the exception which proves
the rule, the building of a new head office
for Vodafone. A major player at a world
level in the mobile phone industry,
Vodafone’s rapid growth in the 1980s and
1990s was not and could not have been
foreseen. Its head offices are located in the
53. Alan W. Evans, No Room! No
Room!, Institute of Economic
Affairs, 1988
54. McKinsey Global Institute,
Driving Productivity and Growth
in the British Economy, Hotels,
p.7, 1998
www.policyexchange.org.uk
• 37
The best laid plans
small town of Newbury located in southern England about half way between
London and Bristol. Vodafone’s rapid
expansion meant that its head office functions became spread throughout the town
and it applied to build a new head office
just outside the town. The proposal was
rejected by the local authority’s planning
committee. It was argued that the proposed development was not provided for
in Newbury’s five year plan and that it
should therefore move elsewhere. Since
Vodafone was, and is, by far the largest
employer in the town this would have
meant that most of the employees would
lose their jobs or have to commute substantial distances. It was argued, however,
on the other side, that new firms would
move in to fill the vacated space and so
new jobs would soon be found.
The way in which the system operates means that
“
economic growth comes low in the order of priorities
”
55. The Observer, 'Pfizer shuns
UK for Germany to escape planning shambles', 25 June 2006,
http://observer.guardian.co.uk/bu
siness/story/0,,1805084,00.html
56. Alan W. Evans & Oliver Marc
Hartwich, Better Homes,
Greener Cities, 2005
38
It is, as we have already said, difficult to
see how Vodafone’s rapid growth could
have been foreseen and therefore difficult
to see how a five year plan could have
allowed for it. But that is the point of
course. Does the plan adapt to the market
or does the market adjust to the plan? In
the event, common sense prevailed and the
proposal was approved by the full Council.
The relevance of this case to the argument regarding clustering is this. The proposal was approved because it related to a
single development by single large firm
wishing to bring its cluster of head office
functions together in one place. The effects
of refusal were obvious, but the proposal
was nearly rejected. But suppose the
mobile phone industry in Newbury had
not been represented by a single large firm
but by a cluster of firms, each gaining
agglomeration economies from its proxim-
ity to the others. In this situation it is evident that proposals to allow development
to take place would not have been permitted because each of the small firms would
have had less political clout, and because
the costs of refusal would not have been so
obvious. So the agglomeration economies
would have been dissipated as firms were
forced to locate further afield, or prevented
from expanding, or prevented from coming into existence in the first place. But
large companies are also affected. For
example, it recently became known publicly that Pfizer decided to locate its
European headquarters in Germany and
not in the UK, and the main reason for
this was the UK planning system.55
The final, general, point that the report
makes with respect to the UK planning system is one that has been made by others,
including ourselves in our earlier discussion
of housing.56 The way in which the system
operates means that economic growth
comes low in the order of priorities. This is
because, first, strategic planning and building consent decisions are made at the lowest level of local government. Second,
although routine decisions may be made by
planning officers, that is by professional
planners, any decisions which are in any
way controversial will be made by locally
elected politicians. The public choice
approach to policy making takes as its basic
assumption that politicians wish to be reelected and will therefore respond to the
wishes of those who have elected them.
Thus they will tend to give more weight to
the views, usually negative, of local residents rather than taking any national viewpoint. In areas of unemployment these residents may favour development which
might bring jobs, but in areas of high
employment the residents will see no reason why new development should spoil
their local environment. Third, the UK system of financing local government gives little or no incentive to a local authority to
allow development. In the case of a new
Economic growth, delay and the level of detail
commercial or industrial development the
property tax paid goes to central government. In the case of new housing the property taxes are paid to local government but
are then netted off against the grant
received from central government.
The local planning authorities, the
report concludes are therefore more likely
to see their role as that of ”environmental
and heritage protection”, where the local
community “see little direct benefit from
economic development”. The report does
not make the point that this is much more
true of southern England than in areas of
the UK where unemployment is higher.
But as we indicated earlier, the South is
where the demand is and, therefore, where
development is constrained and prevented.
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• 39
4
The effect of planning
on interest rates
57. Kate Barker, Review of
Housing Supply: Interim Report Analysis, 2003
The connection between the planning system and economic stability is less direct
than that between planning and economic
growth, or the lack of it, but it exists nevertheless. As we pointed out in our earlier
publications for Policy Exchange, the UK
system of planning for the provision of
housing is a Soviet style system of central
planning. Targets (production norms) are
set for the local authority areas. There is no
political or financial incentive for a local
authority to allow more to be built. The
result is that the supply of housing is very
unresponsive to changes in house prices.
The price elasticity of housing supply in
the UK is not that much above zero whereas it is above one in the US, Germany, and
France.57 That is, a 1 per cent increase in
house prices is associated with a 1 per cent
increase in housing construction in the latter countries, but with hardly any increase
in housing supply in the UK. The economic effect of this disconnection of housing
production from the price system is that
when house prices start to rise they rise
more steeply than they otherwise would
do, and more steeply than they would in
other countries. The rise is not damped
down after a year or so by an increase in
the number of new homes being built.
Conversely price falls are likely to be steeper and deeper than they would have been if
prices had not risen so far and so fast in the
first place.
Figure 4: Central bank discount rates in England and Euroland
7,00
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40
The effect of planning on interest rates
The potentially destabilising and inflationary effects of price increases in the
housing market mean that those concerned with setting interest rates have to
keep at least half an eye on the situation
in the housing market. Thus newspaper
comment on the interest rate decisions of
the Monetary Policy Committee of the
Bank of England tends to be concerned
with two things. Beforehand, will the
Committee have to increase interest rates
because it is felt that house prices are rising too fast or reduce them because prices
are starting to fall? After any change, what
will the effect of the change be on the
housing market? When interest rates are
raised to choke off demand for housing in
one part of the country because of its perceived inflationary impact, then there is
likely to be critical comment as to the
negative impact of the change, on
employment and industry, in other parts
of the country where house prices are not
rising at the same rate. The UK currently
finds itself in such a position with rampant house price inflation in the South
East and London driving higher interest
rates, despite the negative economic
effects for other regions.
Because of the latent inflationary pressure
from rising house prices in the UK, interest
rates in the UK tend to be higher than in the
Euro zone (see Figure 4). Indeed, an argument which has been used for joining is that
the cost of borrowing would be lower.
However, in joining the Euro we would be
more than likely to find ourselves in Ireland’s
situation, where low interest rates and housing supply that is not meeting needs have led
to relatively high levels of inflation. But the
main reason why UK interest rates are high,
despite the low overall rate of inflation in the
UK, is the wish not to add fuel to the inflationary flames by stimulating the demand
for housing, an increased demand which
cannot be met by an increased supply with
the current planning system, and which will
therefore result in higher prices.
This interaction between the housing
market and interest rates was a major factor leading to Kate Barker, a member of
the Bank of England’s Monetary Policy
Committee, being invited to review the
supply of housing, and then, given the perceived effect of the planning system on its
supply, the later invitation to her to review
the planning system itself, as it affected
other activities.
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• 41
5
The Barker Review of
Land Use Planning
In 2005 Kate Barker, a member of the
Monetary Policy Committee of the Bank
of England was commissioned by the
Chancellor and the Deputy Prime
Minister to review the economic effects of
the land use planning system. Her first
report, an analysis of the situation, was
published in July 2006. Her second report,
which included her recommendations, was
published in December 2006. Both she
and her research team must be congratulated on the evidence which is put together
and analysed in the two reports. Some of it
we have used in this report, since it serves
to demonstrate the effects of the planning
system on commerce and industry, the
subject of our publication. Kate Barker had
a wider brief, however, in that she was concerned with the planning system as a
whole, taking into account its impact on
both commerce and on housing. Indeed
the stimulus for these reports on the planning system arose out of her earlier reports
on the supply of housing, where she found
that the main reason for the shortage of
housing was the planning system.
58. HM Treasury, Barker Review
of Land Use Planning, Final
Report - Recommendations,
p. 44, December 2006
42
An admirable analysis …
Drawn together the evidence demonstrates
the nature of the problem which has to be
dealt with. The first aspect is one we mentioned in the introduction to this publication - the British believe that their country
is far more urbanised than it actually is.
While only about ten per cent of the land
in England is developed, few people
believe this. The vast majority, more than
seventy per cent, believe more than a quarter of the land area to be urban; one in ten
believes that more than three quarters of
the land area is built up.58
The second aspect is one that we have
dealt with extensively in this and our earlier publications, namely that the price of
land is too high and becoming higher, and
that this has consequences for the housing
industry and for the structure of commerce
and industry in this country. Third, she
alludes to the argument that the main reason for constraining the use of land is to
increase density and so further global sustainability. But she also draws attention to
the flaws in this argument, that high buildings in themselves are less efficient than
lower buildings, and that constraining
cities leads to excessive commuting as people travel daily from places they can afford
to live in to cities where there are well paying jobs. We have considerable admiration
for the effort which has been put into this
analysis. Our problem lies with the recommendations, which are milder than we
believe is justified by the analysis.
… but timid recommendations.
Nevertheless we understand the nature of
her problem. After all, much of the media
reaction to Barker’s recommendations suggested that she had proposed a complete
shake-up of the planning system, the abolition of green belts and a full, unplanned
concreting over of England. Indeed in one
The Barker Review of Land Use Planning
paper she was described as the most evil
woman in England.
But such a title is thoroughly unjustified. Her recommendations are very circumspect and she clearly seeks to create the
minimum of confrontational argument.
Imagine what she might have been called if
she had sought a more radical approach,
indeed the sort of approach which we have
sought in this and our previous publications!
Planled development
We argue that development should no
longer be plan led. But she argues that the
system should be retained. She writes:
“While it might be thought that a system
based on a presumption in favour of development would support economic growth
better than one based on plans, this planled development is to be supported as it
provides an effective balance between certainty and flexibility”.59 Plan-led, according
to Barker, means “effective place-shaping”,
development in a “co-ordinated manner”
and “efficiency” in planning as fundamental decisions are made once and for all
without having to be done anew for every
single planning application.60
But at some level she is in agreement
with the criticisms which we and others
have made. She acknowledges that ‘planled’ can mean that plans become a tight
corset, binding planners and developers
to plans which should have become obsolete in the light of economic and social
development. It is also possible that larger companies are able to influence planmaking in their favour to a much greater
extent than their smaller competitors.
And she accepts that the introduction of
plan-led development has not significantly reduced the number of planning applications that go to appeal. This could be
interpreted as an indication that plan-led
does not actually improve certainty, one
of the main arguments used to justify its
introduction. Last but not least, Barker is
also sceptical about the possibility of
keeping plans up-to-date, which would be
vital if they were not meant to block economic development.61
But then she goes on to say that “there
is, however, a real issue about whether
within the plan-led system there can be
greater certainty in those instances when
the plan is not up-to-date or determinate.
It is clearly right that where the development plan is up-to-date and the relevant
policies point in the same direction that
this should provide a strong basis for decision-making. In this context it would be
useful if it were made more explicit that
where an application for development is in
accordance with the relevant up-to-date
development plan it should be approved
unless material considerations indicate
otherwise. But in many instances planning
policies may pull in different directions
(and in theory in some cases the plan could
be silent). There may also be instances
when the plans are not up-to-date, despite
the recent reforms.”62
And this leads her to recommend that
“where development plan provisions are
indeterminate or where they are not upto-date, the application should be
approved unless there is a significant
probability that the likely environmental,
social and economic costs of the development will outweigh the respective benefits.”63
But since plans can always be argued,
within a few months of their coming into
force, to be out of date it follows that the
way would be open for developers, most of
the time, to be able to appeal on the
grounds that the plan was out of date.
Town centres first
A similar criticism can be made of the way
in which Barker deals with the town centres first policy, which she thinks is important to “promote the vitality and viability
59. Ibid, p.18
60. Ibid, p.18
61. Ibid, p.19
62. Ibid, p.19
63. Ibid, p.20
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• 43
The best laid plans
of town centres”.64 It is difficult to disagree,
for who would argue for town centres to
decay? But while vital town centres may
indeed be desirable, the town centre first
approach may not always have the intended effects. On the contrary, we have
observed in recent years a wave of concentration in the British retail sector, something which others have summed up by the
phrase “clone town Britain”.65 The real reason behind the clone town phenomenon,
we believe, can be found in high land
prices due to restricted land supply. This
makes it very expensive for entrepreneurs
to open shops, favours big retail chains
with good access to capital and works
towards a standardised range of products,
as we have explained earlier in this report.
Therefore a policy focus on town centres
combined with high land prices will only
exacerbate the town cloning process.
Green belts
We have argued in this and our earlier
publications that the main problem is the
policy of constraint. Barker’s analysis in her
first report on the planning system goes
some way to demonstrate the way in which
the system sends the wrong price signals,
something we have tried to analyse further
in this publication. But the sole recommendation which relates directly to the
policy of constraint is that relating to green
belts
When it comes to solutions and recommendations, the
“
impression one gets is that she shies away from spelling out
what would logically follow from her own arguments
”
64. Ibid, p.29
65. New Economics Foundation,
Clone Town Britain, 2005
66. HM Treasury, Barker Review
of Land Use Planning, Final
Report - Recommendations, p.
67, December 2006
44
Kate Barker sums up nicely the major
arguments for and against green belts. In
particular, she mentions that a green belt
policy comes at the cost of undesirable
environmental, social and economic side
effects. We would agree with this analysis.
Higher occupation costs for offices, raising
the costs of entry for new firms, reducing
labour mobility and hampering the development of innovation clusters can all be
logically linked to an often clumsy, centralistic and national green belt policy. Kate
Barker’s analysis correctly highlights these
problems.
But again, when it comes to solutions
and recommendations, the impression one
gets is that she shies away from spelling out
what would logically follow from her own
arguments. While she makes clear that
demographic pressures, especially the
expected formation of some four million
new households over the next twenty years,
make it unavoidable to discuss the issue of
land supply seriously – and this includes
discussing the status of designated areas
such as green belts – she does not spell out
that this is incompatible with sticking to
the current national policy. Thus her recommendation does not go nearly far
enough. She states that “regional planning
bodies and local planning authorities
should review green belt boundaries as part
of their Regional Spatial Strategy/Local
Development Framework processes to
ensure that they remain relevant and
appropriate, given the need to ensure that
any planned development takes place in
the most sustainable location”.66
But experience of politics and politicians’ caving in to pressure from local
home owners, the Campaign to Protect
Rural England, and others suggests that in
most cases the various authorities will
review the boundaries and find that they
need, if any, little adjustment.
Given that any recommendation is likely to be treated as an opening gambit in a
bargaining session, it would have been better to state clearly that the national green
belt policy should be abolished and decisions over the use of current green belt
land should be handed down to local
authorities. Possibly it should have been
The Barker Review of Land Use Planning
made more explicit that this would not
mean at all that much of the green belt
would need to be developed, but maybe
only a small fraction of it. After all, and
according to Barker’s own figures, green
belts currently account for thirteen per
cent of all land in England – an area larger
than that used for urban development.67
The additional housing needs of the population could therefore be satisfied by only
giving up a tiny share of this, and maybe
even that would be unnecessary if one first
used the land that was set aside under agricultural policies (around 5 per cent of the
total land). Certainly we would have
wished that Barker had been more forceful.
But we can also sympathise with her position – the public reaction to her very circumspect recommendation would seem to
have held her back from an even more outspoken recommendation concerning this
issue.
Local authorities and development
In the chapter on creating incentives for
local authorities to permit development
her reasons for holding back are even more
transparent. Here again, we welcome her
basic analysis which coincides with our
previous research on this subject. She
recognises that in order to lead local decision makers to a more pro-development
approach, incentives have to play a key
role. At the moment the system of local
government finance effectively punishes
local communities for allowing development. Not only do they have to provide
additional infrastructure, but there is also a
lack of extra revenue from such growth.
She also points to the fact that this can lead
to a situation in which the long-term economic prospects of a community are neglected because of a lack of current incentives.
The problem here is that at the same
time that Barker was preparing her review,
a separate review into local government
finance under Sir Michael Lyons was carried out, but publication of this report
became delayed and is now expected no
sooner than February 2007. And so
Barker’s recommendation goes no further
than suggesting that “the Government
considers, in the context of the Lyons
Inquiry into Local Government, further
fiscal options to ensure that local authorities have the right fiscal incentives to promote local economic growth.”68
We agree, but we would have wished a
clearer indication as to what Barker would
consider appropriate in this context. For
example, it would have been helpful to
explore in greater detail how the Planning
Gain Supplement, a tax to capture some
portion of the land value uplift when planning permission is granted, could be linked
directly to local communities. While we
have argued for a somewhat similar Social
Cost Tariff, there is a decisive difference:
under our scheme, all revenue of this tariff
would go to local government. The
Planning Gain Supplement, on the other
hand, will as it seems only go the Treasury
and therefore its incentive quality for local
communities will be significantly diminished.
Dissenting from Barker
There are two areas, in which we are hesitant to follow Barker’s arguments and even
more hesitant to accept her conclusions.
The first relates to design. She recommends that “decision makers should give a
high priority to ensuring that new development has high design standards” and that
local authorities “should be encouraged to
turn down poorly designed proposals”.69
There are a couple of problems with this
recommendation. The first is that people
are liable to disagree as to what is regarded
as good design: de gustibus non disputandum est. And committees are certainly not
to be trusted as arbiters of good design; as
the saying goes, ‘a camel is a horse designed
67. Ibid, p.185
68. Ibid, p.154
69. Ibid, p.134
www.policyexchange.org.uk
• 45
The best laid plans
70. Ibid, p.76
46
by a committee’. The second is that, precisely because good design is difficult to
define, it is likely that ‘poor design’ will be
cited as a reason for rejection where there
vociferous objectors, but no other justifiable reason. Certainly we know of examples of this even under the current regime.
Thus the proposal, if accepted, is likely to
lead to delays and appeals. Its effect would
be precisely the opposite of our recommendation that less detail should be considered
in planning applications.
The second concerns her proposal for the
creation of an Independent Planning
Commission.70 We can understand why she
should propose this: in the past, large infrastructure and energy projects have often
been delayed due to the planning system.
Making the planning process faster is thus
something that we would also like to see.
But we have doubts about Kate Barker’s proposed solution, which would involve a further centralisation of planning. In our previous publications we have stressed that we
would like to bring about a better planning
system by taking a different route. We think
that what we need is more localised and
incentivised planning, which is just about
the opposite of what a national Independent
Planning Commission would stand for.
We believe that local communities are
able to make their own choices about large
projects, too, provided that they are confronted with the full costs and benefits of
their planning decisions. Besides, it is local
communities that have the local knowledge necessary to decide in an informed
way. This kind of local knowledge cannot
be replicated in a centralised planning
commission. So for these reasons, we are
critical of the idea of a planning commission. It would basically stand for more of
the present system when a departure from
it is actually needed.
But there is another problem with an
Independent Planning Commission. It
could lead to some bizarre situations
whereby large and important development
projects such as nuclear power stations and
airports would be decided by unelected
commissioners, while smaller, yet still significant projects such as large housing
developments or out-of-town shopping
centres would still be within the competence of the elected Secretary of State.
We await with interest the government’s
response to the Report and its recommendations over the next few years. But do not
expect that it will have any effect in the
near future. And this is unfortunate. The
one recommendation which might release
more land for development, that green belt
boundaries should be reviewed, even if
accepted is likely to be so long in the
review that by the time any land might be
released either land prices will have gone
through the roof or the economy will have
collapsed, and quite possibly both.
6
Conclusions and
recommendations
What we have tried to show in this publication is the way in which the operation
of the planning system in the United
Kingdom serves to constrain and distort
the growth of the economy. Planning can
no longer be viewed, as it has been for
fifty years, as a government activity
which affects only the physical environment and has no impact on the wider
economy. The interactions and interrelationships exist and must be understood
in order that the negative impacts can be
ameliorated.
The most obvious effect derives from
the policy of constraint which has existed,
first implicitly, then explicitly, for fifty
years or so. The result of this policy is that
in the UK land for industry and commerce
is more expensive than it is in other countries. If one of the three factors of production – land, labour, and capital – is more
costly than elsewhere then, in order to
compete with other countries where land is
cheaper, the returns to labour and capital
must be less. Since in the world of today
capital is more mobile than ever, then the
return to labour must be less. Either that or
the labour force of the UK must have some
extra skills not transferable abroad. The
UK economy’s effectiveness is, in simple
terms, based on the relatively low wages it
pays and on our linguistic advantage. The
latter is temporary, and a combination of
lower future immigration and our generous welfare system makes lower wages
unsustainable too. This is the sand on
which the edifice is built.
Young people seeking to buy their first house, and then to
“
pay off the mortgage, are the ones who lose out
”
What we have tried to show is that one
way in which the return to labour is
reduced is that prices tend to be high in the
UK, something which is certainly perceived by most visitors to the country.
There is also a significant difference
between the positions of different age
groups. As we showed in our previous publications on the housing market older
households who own their houses have
gained as land owners what they would
have lost to landlords as renters. Young
people seeking to buy their first house, and
then to pay off the mortgage, are the ones
who lose out. The older households will
also have gained from the increase in property values because they will be the beneficiaries of pension funds and may own
shares in property companies. The young
have not yet built up savings sufficient to
benefit from any such investments. Thus
the analysis of the way in which planning
affects industry and commerce reinforces
the conclusions which we drew from the
analysis in the previous reports – politically it is the younger households and renters
who would have most to gain from any
relaxation of the system. It is the older,
owner occupying households who are most
likely to wish to prevent any such relaxation. It is, of course, the young who are
www.policyexchange.org.uk
• 47
The best laid plans
71. David Willetts MP, 'Heirs to
the Baby Boomers - Securing
equity across generations', in
Roger Gough (ed.), 2056 - What
future for Maggie's children?,
Policy Exchange, 2006
48
the future and the old who are the past.
For the sake of the future of this country
we hope that it is the voices of the future
which will be heard.71
What then can be done? It has to be said
that our study of planning as it affects
industry and commerce has not caused us
to vary the conclusions we reached in
studying planning as it affects housing,
and hence our recommendations for
change largely remain the same.
An important reason for this is that our
firm belief is that planning needs to be
flexible. Any planning system needs to take
into account the fact that conditions
change and that they change in ways which
are difficult to foresee. Earlier in this report
we quoted Harold Macmillan, the former
British Prime Minister, on the unpredictability of events. The US President at
that time, Dwight Eisenhower, was equally
forthright on the same theme, “In preparing for battle I have always found that
plans are useless, but planning is indispensable”. Put another way, an inflexible plan
is useless, what you have to do is plan for
the possible eventualities. But the UK’s
planning system has steadily become less
and less flexible, reaching the point in
1991 that what was enacted was an inflexible, Soviet style, central planning system
of so called ‘plan led’ development – any
development which was not in the five year
plan could be refused permission on those
grounds alone. Certainly one would have
thought that an inflexible system, operating according to norms laid down by central government should be easily perceived
as obsolescent fifteen years after the fall of
the Berlin Wall and the collapse of the
Soviet Union, and in an age when such
plans have even been abandoned by nominally Communist China.
Once such central control is abandoned,
as it should be, then the system must be
flexible to changing circumstances. Any
decision as to the award of planning permission should be based on an evaluation
of the net benefit to society of what is proposed. For this to be possible there has to
be some presumption in favour of development, a presumption which existed before
the 1991 Act. After that date, since everything had to be in accordance with the
plan, as approved by central government,
the presumption was dropped.
But in considering whether development should be permitted, and allowing
for a relaxation of the policy of constraint,
how do we take account of people’s wish
that green fields should be preserved as far
as possible? We put forward the proposal in
Better Homes Greener Cities that undeveloped land should be subject to what we
called a Social Cost Tariff (SCT). As we
put it then “in our view the SCT should be
paid as a rate based on the highest possible
social cost of the use of the land, i.e.
£500,000 per hectare for green field development. This would ensure an adequate
payment for what is regarded as the social
cost of development – the loss of the green
field site – while ensuring that the development is not distorted. It would also be in
line with the Rogers Report’s suggestion of
an Environmental Impact Fee” (p. 45). We
went on to state that the same system
should be applied to commercial and
industrial development, since it is the
social cost of green field development
which is at issue.
We would not wish to alter this view.
Nevertheless, in discussing commercial
and industrial land it is worth noting that,
over most of the country, the value of commercial land is now lower, often substantially lower, than the value of land for
housing. This would seem to be paradoxical because it implies that, at the margin,
society prefers land to be used for commercial and industrial use rather than for housing. The financial barrier which has to be
leaped is much lower. The implication is
that there is a lower social cost with commercial uses than with housing. But while
industry is less malodorous and environ-
Conclusions and recommendations
mentally displeasing than it was, still, it
does seem difficult to argue that industrial
and commercial uses of land are environmentally preferable, indeed substantially
preferable, to the use of land for housing.
The truth is of course that this is not so. It
is just that the forces of supply and
demand have ensured that prices are as
they are.
There is, first, on the supply or planning
side, a presumption that industry and
commerce represents jobs and incomes and
therefore should not be prevented, indeed
in some areas may be encouraged by the
construction of advance factories. This
view has coexisted with a period when the
demand for space for industry and commerce has not risen as fast as the demand
for space for housing. Local planning
authorities may feel that they have some
responsibility to allow offices and factories
to be built where local residents can find
jobs, but do not feel themselves under the
same pressure to provide land for housing
which may only allow newcomers to move
into the area to take these jobs.
Thus the paradoxical situation in which
we find ourselves with regard to relative
land values is the result of a mix of environmental, political, and economic pressures. Adjustment to a more rational relationship will take a considerable time. It
has been put to us that the Social Cost
Tariff for commercial development should
be lower than it would be for residential
development, on the grounds that the
price of commercial land is now virtually
everywhere lower than the price of residential land. But if the SCT truly measures the
social cost of development on green field
sites, and that is our intention, then there
seems no reason for it to be lower for commercial development. It might be higher
on the grounds that commercial development might be regarded as less environmentally pleasing, but that is all.
Otherwise we would be conceding ground
to precisely that mixture of contradictory
political forces which led to land prices
being what they are now. However, we suggested in Better Homes, Greener Cities that
the SCT could be variable downwards
where authorities wanted to go for growth
or – as in economically depressed areas –
where the balance of the social costs to
social benefits of extra development are
lower. We believe that this principle applies
as much to commercial as residential development
A system which ensures that all business rates and
“
taxes are collected by central government gives no fiscal
incentive to local authorities to allow commercial and
industrial development
”
One change which we recommended in
our earlier report, Better Homes, Greener
Cities, related to the tax system. This
would be a more radical solution than the
SCT, but given the sensitivities of local
government finance reform it would probably be much more difficult to implement.
We argued there that the British system of
local government finance strives to an
excessive extent to maintain equity
between local authorities; equity here
meaning seeking to ensure that, as far as
possible, each locality has sufficient funds
to provide the local services that central
government thought should be provided,
no less, but also no more. But this striving
for equity, we would maintain, is at the
expense of efficiency. So, in the context of
this report, a system which ensures that all
business rates and taxes are collected by
central government gives no fiscal incentive to local authorities to allow commercial and industrial development. Of
course, a system which only returns a grant
to local government which is perceived, by
central government, as strictly that necessary for its needs, seems obsolescent.
Indeed if the British planning system can
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The best laid plans
be described as Soviet style, the British system of local government finance seems to
come from an even earlier Marxist period,
indeed from Marx himself – ‘From each
according to his abilities, to each according
to his needs’.
The way in which, in this country, such proposals can
“
get bogged down in inquiries for years on end makes the
UK a laughing stock and damages the economy by delay
ing muchneeded investment
72. Daily Telegraph, 'Reform of
rates is not the solution', 19
September 2006 www.telegraph.co.uk/money/main.jhtml?x
ml=/money/2006/09/19/cbrates19
.xml
50
”
Imagine a personal tax system which
ensured that almost all income went to the
State, and each household received a grant
meant to be sufficient to ensure that everybody had exactly the same standard of living. In this case the effects of such a complete lack of any incentive are self evident.
Only if motivated by external motives such
as in wartime will households be willing to
do more than the minimum. But the same
lack of incentives affect local government.
Some incentives for local government need
to be restored. In the context of this
report’s concern with industry and commerce it follows that the additional rateable income which is collected when new
buildings are put up should go not to central government but to the local government, which has to provide the local services necessary for the firm’s efficient functioning. At the moment local authorities
have no real incentive to assist local firms
except to the extent that they employ local
employees. This disconnection is wrong
and should be corrected. If that means that
some local authorities can provide more
and better services than others so be it. It is
clear that restoration to local government
of a share in the income from the business
rate would not only provide an incentive to
local government to allow development. It
would also create the basis for a better relationship between business and local gov-
ernment. Certainly this seems to be the
factor which, if reports are correct, is pushing the Lyons review of local government
finance towards making a similar recommendation.72
The core philosophy here would seem to
be that a local authorities should be given
greater independence from central government, a greater ability to control what goes
on in its area, together with financial incentives to take responsibility for its actions. But
this freedom has its limits, and it is here that
we add two further recommendations to
those we made in our earlier work.
The first additional proposal relates to
major projects which have a national or
regional impact. Usually these are concerned
with what might be called ‘infrastructure’ –
roads, railways, airports, etc. The way in
which, in this country, such proposals can
get bogged down in inquiries for years on
end makes the UK a laughing stock and
damages the economy by delaying muchneeded investment. It appears to us that
since such infrastructure is national in character it should be decided at a national level.
The procedure adopted with regard to the
Channel Tunnel was to deal with its
approval by Act of Parliament. It would certainly seem that this would be the best way
to deal with other proposals of a national
rather than local character. Maybe the
process of inquiry, if conducted within
Parliament, would not be so extended nor so
detailed. But then, as we have pointed out
earlier, it is not at all evident why the process
of inquiry into the construction of, say, an
airport terminal, should take considerably
longer and go into greater detail in consideration of the proposal than any consideration
of a proposed Act of Parliament, including,
indeed, an Act changing the whole planning
system. A similar proposal was made in an
earlier White Paper aimed at streamlining
the system, but, for whatever reason, nothing seems to have come of it. Nevertheless, if
local proposals should be dealt with at a local
level because the effects of the development
Conclusions and recommendations
are felt locally, then, logically, national proposals should be dealt with at a national
level.
The second further proposal we would
wish to make with regard to the operation of
the planning system relates to the level of
detail which should be considered in a planning application. Planning proposals for
buildings in the UK may be in ‘outline’, but
any outline application must be followed up
by a detailed application. It is our view that
because planning applications are considered
in such detail, this is a factor which leads to
delay. To cite cases known to us, a building
can be delayed for a year while discussion
takes place over the colour of the bricks to be
used, or whether the location of a building
should be one metre further from another
on the same site in the same ownership, or
whether a gable on a rear extension should
be hipped or not. At the extreme, of course,
the reductio ad absurdum, there is the model
village of Bekonscot where the local authority solemnly considers whether the proposed
four foot high model of, say, a church should
be permitted to be built, with the implication, indeed the presumption (in both senses), that they might think that some other
model church might be better, if the local
planning authority, in its omniscience,
thought so.
Of course with some buildings and in
some areas questions of detail can be important. This is certainly true of Listed
Buildings and Conservation Areas. But in
the case of other developments the consideration of detail leads to delay and would
appear unnecessary. In most cases outline
permission would appear to be sufficient,
maybe what is now required for outline permission should include somewhat more
detail, but something which is closer to a
zoning system than currently exists would
appear beneficial. So called Simplified
Planning Zones were experimented with in
the 1980s, but like the Enterprise Zones
which were set up in the period they were
primarily intended to encourage develop-
ment in areas where it was felt to be needed.
We are arguing for a more wholesale adoption of the zoning model; after all most of
the rest of the world requires far less detail to
be considered in their planning controls. It is
the UK which is out of step. Maybe there
might be environmental gains. For example,
maybe British architecture would be more
interesting if it did not have to be made platitudinous and anodyne in order to make
sure of its acceptability by local planners and
councillors. Certainly delays would be
reduced. It is said of taxes that a tax delayed
is a tax unpaid. At present it would often
seem that those opposed to a proposal argue
over questions of detail as a way of delaying
the development they do not want to see but
regard as inevitable. For them an application
delayed is a foundation stone not laid. The
reduction in the level of detail would, however, be an improvement from a national
point of view. From that viewpoint a building not delayed, less epigrammatically, is a
more efficient building operating sooner
than it might be.
The final proposal that we would wish to
make is that the system should be made as
simple as possible, and that it should not be
used to try to deal with aspects of the economy for which it is not suited. For there is
a sort of unholy alliance with regard to the
planning system, an alliance between planners, who operate the system, and, for want
of a better term, ‘NIMBYists’ (from the
acronym NIMBY = “Not in my backyard”). The latter want to stop developments taking place, the former want as
much control as possible of the development which might occur. The resulting
alliance has a mutual interest in increasing
the complexity of the system. Peacock
pointed out in 1984 that the number of
statutory regulatory instruments available
to planners increased from 98 in 1958 to
386 in 1979.73 More recently Mark
Pennington, in his thorough analysis of the
problem, noted that, for example, between
1962 and 1991 there was a sixfold ‘real’
73. A. Peacock (ed.), The
Regulation Game, 1984
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The best laid plans
74. Mark Pennington, Planning
and the Political Market, 2000
increase in local authority expenditure on
planning.74 If the complexity increases then
planners have more power and control bigger budgets while development is made
more difficult. The result is an expansion in
the powers of planners and the complexity
of the system which easily survived the
Thatcher era (probably because many
Conservative
voters
were
also
‘NIMBYists’). The expansion in complexity occurs together with an expansion of
planning powers into areas of the economy
which the physical system is ill-suited to
deal with. For example, the competition
between supermarket chains in part occurs
through attempts to manipulate the planning system. Whether or not the rival
supermarkets are correct it is pertinent to
note that Tesco’s rivals perceive the system
as non-neutral, and as being manipulated
by Tesco to minimise competition. From
an economist’s point of view we note that
the criteria which are used do not include
whether a competitor would reduce prices
and widen choice. Only whether the current situation is adequate and whether a
new market might drive some smaller firms
in town centres out of existence; that is, the
competitive situation is not seen from the
consumer’s point of view.
Then there are the numerous pieces of
guidance from central government as to
how fuel consumption could be reduced
through the planning system in order to
tackle global warming. This increase in
complexity is pointless on two grounds.
The first is that it is ineffective. For example, the amount of parking space associated with new housing is promoted as being
as low as possible. But if some new
dwellings are built without parking then
the probability is that they will be occupied by people who do not own or want to
own a car. Those that do will live in
dwellings where there is parking. The
effect on car ownership will be minimal.
The second is that any effect the regulations might have will affect fuel consumption only in the long run. After all only
about one per cent of the housing stock is
built or replaced each year. But if one is
serious about global warming then consumption has to be reduced within the
next twenty years, at most. Thus virtually
everything that is done through the planning system in this regard is worthless. It is
complexity for the sake of complexity.
Thus we would argue that the system
should be made less complex, that it should be
stripped down, that the accretions of complexity and regulation which have been added,
layer by layer, over the last fifty years should be
removed. It has to be said that we make this
recommendation without much hope that
this will occur. We are too well aware that
Byzantine systems of this nature fall only after
revolutions, and we do not yet see such a revolution as occurring in the near future.
The Channel Tunnel Rail Link
The Act which permitted the construction of the Channel Tunnel Rail Link (CTRL) was passed by Parliament in 1996. By this Act it
was in effect given outline planning permission. The details at the local level, including construction arrangements, had to be settled by ‘planning conditions’ agreed by the various local authority. However, local authorities had to agree beforehand that they would
act expeditiously and reasonably. Thus there was an agreed timetable, applications with respect to these planning conditions would
be dealt with within eight weeks, and the planning inspectorate agreed to deal with appeals within three months. There were eleven
hundred such planning conditions, few appeals occurred.
One way in which the Parliamentary Bill procedure could be speeded up would be by the House of Commons and the House of
Lords acting in concert. In the case of the CTRL each House had its own separate committee to look into petitioner’s concerns,
hear witnesses, etc. The proceedings after such an Act is passed could be speeded up by reducing the level of detail for which permission is required could be reduced.
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